Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

(Mark One)

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Fiscal Year ended December 31, 2020

 

OR

 

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period from                     to                    

 

Commission File Number: 000-19709

 

BIOLARGO, INC.

(Exact Name of registrant as specified in its Charter)

 

 

Delaware

 

65-0159115

(State or other jurisdiction

of incorporation or organization)

 

(IRS Employer

Identification No.)

 

 

14921 Chestnut St., Westminster, CA

92683

(Address of principal executive offices)

(Zip Code)

 

Registrants telephone number, including area code: (888) 400-2863

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock

BLGO

OTCQB

 

Securities registered under Section 12(g) of the Exchange Act: none

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ☐    No  ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No  ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes  ☒    No  ☐

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ☐

Accelerated filer                   ☐

Non-accelerated filer     ☒

Smaller reporting company  ☒

 

Emerging growth company  ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. Yes  ☐    No  ☒

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐    No  ☒

 

The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common stock was last sold as of the last business day of the registrant’s most recently completed second fiscal quarter was $30,512,541.

 

The number of shares outstanding of the issuer’s class of common equity as of March 24, 2021 was 238,776,271; no preferred shares are issued or outstanding as of that date.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Information required by Items 10, 11, 12, 13 and 14 of Part III of this Annual Report on Form 10-K are incorporated by reference from the Registrant’s Proxy Statement for its annual meeting to be held June 15, 2021.

 

 

 

 

TABLE OF CONTENTS

 

 

 

   

Page

PART I.

   

Item 1.

Business

1

Item 1A.

Risk Factors

11

Item 1B.

Unresolved Staff Comments

23

Item 2.

Properties

23

Item 3.

Legal Proceedings

23
     

PART II.

   

Item 5.

Market for Registrant’s Common Equity, Related Stockholders Matters and Issuer Purchases of Equity Securities

24

Item 6.

Selected Financial Data

25

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

25

Item 7A.

Quantitative and Qualitative Disclosures About Market Risk

33

Item 8.

Financial Statements and Supplementary Data

33

Item 9.

Changes In and Disagreements with Accountants on Accounting and Financial Disclosure

33

Item 9A.

Controls and Procedures

33

Item 9B.

Other Information

34
     

PART III.

   

Item 10.

Directors, Executive Officers, and Corporate Governance

35

Item 11.

Executive Compensation

35

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

35

Item 13.

Certain Relationships and Related Transactions, and Director Independence

35

Item 14.

Principal Accounting Fees and Services

35
     

PART IV.

   

Item 15.

Exhibits, Financial Statement Schedules

36

Signatures

41

Index to Financial Statements

F-1

Report of Independent Registered Public Accounting Firm

F-2

Consolidated Financial Statements for the Years Ended December 31, 2020 and 2019

F-6

 

 

PART I

 

 

ITEM 1. BUSINESS

 

USE OF FORWARD-LOOKING STATEMENTS IN THIS REPORT

 

This annual report on Form 10-K for the year ended December 31, 2020 (the “Annual Report”) contains forward-looking statements that involve substantial risks and uncertainties. All statements, other than statements of historical fact, included in this Annual Report regarding our strategy, future operations, future financial position, future revenues, projected costs, prospects and plans and objectives of management are forward-looking statements. These forward-looking statements include, but are not limited to, predictions regarding:  

 

 

our business plan;

 

 

the commercial viability of our technology and products incorporating our technology;

 

 

the effects of competitive factors on our technology and products incorporating our technology;

 

 

expenses we will incur in operating our business;

 

 

our liquidity and sufficiency of existing cash;

 

 

the success of our financing plans; and

 

 

the outcome of pending or threatened litigation.

 

You can identify these and other forward-looking statements by the use of words such as “anticipates,” “believes,” “estimates,” “expects,” “intends,” “may,” “plans,” “projects,” “will,” “would” and similar expressions, or the negative of such terms, although not all forward-looking statements contain these identifying words. Forward-looking statements also include the assumptions underlying or relating to any of the foregoing statements.

 

We have based these forward-looking statements on our current expectations and projections about future events. Although we believe that the expectations underlying our forward-looking statements are reasonable, these expectations may prove to be incorrect, and all of these statements are subject to risks and uncertainties. Therefore, you should not place undue reliance on our forward-looking statements. We have included important risks and uncertainties in the cautionary statements included in this Annual Report, particularly the section titled “Risk Factors” incorporated by reference herein. We believe these risks and uncertainties could cause actual results or events to differ materially from the forward-looking statements that we make. Should one or more of these risks and uncertainties materialize, or should underlying assumptions, projections or expectations prove incorrect, actual results, performance or financial condition may vary materially and adversely from those anticipated, estimated or expected. Our forward-looking statements do not reflect the potential impact of future acquisitions, mergers, dispositions, joint ventures or investments that we may make. We do not assume any obligation to update any of the forward-looking statements contained herein, whether as a result of new information, future events or otherwise, except as required by law. In the light of these risks and uncertainties, the forward-looking events and circumstances discussed in this report may not occur, and actual results could differ materially from those anticipated or implied in the forward-looking statements. Any forward-looking statement made by us in this report is based only on information currently available to us and speaks only as of the date on which it is made.

 

When we refer in this report to “BioLargo,” the “company,” “our company,” “we,” “us” and “our,” we mean BioLargo, Inc., and our subsidiaries, including BioLargo Life Technologies, Inc., which holds our intellectual property; ONM Environmental, Inc., which manufactures, markets, sells and distributes our odor and volatile organic compound control products; BioLargo Water Investment Group, Inc., which owns our Canadian subsidiary BioLargo Water, Inc., which develops and markets our AOS water treatment technologies; BioLargo Engineering, Science & Technologies, LLC, a professional engineering services division; and BioLargo Development Corp., which employs and provides benefits to our employees. We also own approximately 45% of Clyra Medical Technologies, Inc. (“Clyra Medical”) as of December 31, 2020, an entity we formed to commercialize our technologies in the medical and dental fields.

 

 

The information contained in this Annual Report is as of December 31, 2020, unless expressly stated otherwise.

 

Our Business - Innovator and Solution Provider

 

BioLargo, Inc. invents, develops, and commercializes innovative platform technologies to solve challenging environmental problems like PFAS contamination, advanced water and wastewater treatment, industrial odor and VOC control, air quality control, and infection control. With over thirteen years of extensive R&D, BioLargo holds a wide array of issued patents, maintains a robust pipeline of products, and provides full-service environmental engineering. Our peer-reviewed scientific approach allows us to invent or acquire novel technologies and develop them to maturity through our operating subsidiaries. With a keen emphasis on collaborations with academic, municipal, and commercial organizations and associations, BioLargo has proven itself with over 80 awarded grants and numerous pilot projects. We monetize through direct sales, recurring service contracts, licensing agreements, strategic joint venture formation and/or the sale of the IP.

 

In the last year, we developed and refined new technologies that are now ready for commercial trials (see Development of AEC to Combat PFAS Crisis, and New TechnologyMineral Extraction), formalized strategic relationships to expand sales and revenues (see South Korean Joint Venture, and Full Service Environmental Engineering), arranged for demonstration pilot projects for our AOS water treatment system (see Sunworks Farm Pilot and Municipal Wastewater Treatment PilotMontreal), increased revenues, including those of our flagship product, CupriDyne Clean (see Results of Operations), and began the process to register our CupriDyne technology with the EPA to make advanced sanitization and disinfection claims, all the while we and the world struggled through the challenges presented by the COVID-19 pandemic.

 

Several of our technologies are commercially available and are advancing as disrupters in their respective markets.

 

Formula for Success: Technology, Talent and Purpose

 

Technology

 

The company has continually advanced its robust portfolio of technologies since the first acquisition of early iterations of the BioLargo technology in the spring of 2007. Our innovations have primarily been developed through the company’s internal resources, and some through acquisition. These include patents, patents pending and trade secrets that include solutions for:

 

 

PFAS removal

 

SARS-CoV-2 solutions

 

Air quality controls and systems including odor and VOC control

 

Water decontamination

 

Micro-pollutant destruction and removal

 

Legionella detection and water treatment solutions

 

Mineral processing

 

Infection control

 

Wound management

 

Regenerative tissue therapy

 

Disinfection

 

Talent

 

We have steadily grown our team to 27 team members and numerous other part-time consultants, including highly qualified PhDs, engineers, MDs and medical professionals, construction professionals, field service technicians, innovators, sales marketing specialists, entrepreneurial and executive leadership.

 

Purpose

 

Our mission to make life better centers our company on serving others with integrity, knowledge, technology, and solutions that protect the environment, improve quality of life, and protect lives. We are unique in our ability to tailor our offerings to serve our customers with proven expertise, proven technology and, if needed, we often have the ability to develop new technical solutions to meet our customer’s needs.

 

 

Development of AEC to Combat PFAS Crisis

 

Our engineers at BLEST have developed a novel water treatment system, called the AEC (Aqueous Electrostatic Concentrator), that removes per- and poly-fluoroalkyl substances (PFAS) from water at a fraction of the cost of existing solutions. PFAS chemicals can cause cancer, infertility, asthma, and other health problems in human beings, are present in a vast range of manufactured goods, common household products (e.g., cleaning products, cookware), and electronics, and contaminate drinking water in unsafe levels all over the globe. Governments and industry are actively seeking less expensive technologies and processes to eliminate PFAS from groundwater and drinking water. The U.S. Environmental Protection Agency (“EPA”) has made finding an economical solution a priority, announcing in February 2021 final regulatory determinations on the safe maximum levels of PFAS in drinking water, paving the way for regulating the chemicals through the Safe Drinking Water Act and creating a regulatory environment where municipalities will be required to install technologies that help remove PFAS from their drinking water supplies prior to distribution.

 

Our AEC treatment system has been proven in lab-scale studies to meet or exceed the performance of current incumbent solutions (such as carbon-filtration and reverse osmosis) while consuming as little as $0.30 in electrical costs per 1,000 gallons treated. And most significantly, the AEC produces substantially less waste than carbon-filtration and reverse osmosis systems, creating far less of a disposal liability. We believe testing will show that total operating costs of the AEC represent a significant potential cost savings compared to reverse osmosis and carbon sequestration technologies.

 

PFAS water contamination is a significant problem worldwide. In the United States, PFAS chemicals have been estimated to be present in the blood of 98% of the population, and have been linked to a plethora of health problems including high cholesterol, liver dysfunction, immune disorders and various cancers. Over 1,400 communities so far in the U.S. have been proven to be affected by PFAS water contamination. In Orange County, California, where our corporate offices are located, more than 40 drinking water wells have been taken out of service due to PFAS contamination, and county officials estimate that treating the wells using existing technologies will cost more than $200 million in capital costs and more than $400 million in maintenance and operating costs. When PFAS-laden carbon is incinerated, not only does it produce vast volumes of greenhouse gases such as carbon dioxide, but new evidence suggests volatile fluorochemicals like carbon tetrafluoride, hexafluoroethane, and hydrogen fluoride are released into the air which may have serious human health impacts on adjacent communities. Our technology does not require incineration.

 

We are in the final stages of refining the AEC technology prior to commercial sales. We have received interest in the system from multiple municipal water agencies. We have completed third-party testing to validate the efficacy of the system. We have designed a modular system that can theoretically handle large projects. We are constructing a pilot unit for testing at an ongoing project at a municipal water treatment plant in Canada (see Wastewater Treatment Pilot – Montreal, below). We are hopeful to start multiple pre-commercial trials in the U.S. by the end of summer.

 

Broadly speaking, there are three main markets for PFAS water treatment in the U.S., each of which we intend to address in the coming years. The first is municipal water treatment – that is water which needs treatment for PFAS before it can be distributed to the public or water that must be treated from a wastewater treatment plant. Southern California, Michigan and Wisconsin may be hotbeds for this market, as the states have adopted stringent regulations on PFAS limits in drinking water and wastewater, and significant initiatives have begun to implement systems to address the problem. The second market is military bases, where the use of PFAS-containing fire-fighting foam has contaminated the soil and groundwater. These sites are numerous and have significant groundwater and soil contamination problems which regulators are likely to require remediation for in the coming years. The third market is treatment for water intake or outfalls of industrial facilities that use PFAS compounds in manufacturing and other industrial processes. Our first pilot projects are in municipal water treatment. As our engineers are already providing environmental engineering services on U.S. Airforce bases, we believe that work may lead to sales in that arena.

 

 

COVID-19 Response and Related Business Development

 

In response to the COVID-19 crisis, and because of our technology portfolio’s specialty focus on nature’s best disinfectant, iodine, at the outset of the pandemic we sponsored research with one of the country’s leading researchers in the study of pandemic diseases, Dr. Slobodan Paessler. Located at the Galveston National Laboratory at the University of Texas Medical Branch, his laboratory confirmed that our CupriDyne technology inactivated the Coronavirus that causes COVID-19.

 

Following this initial study, the laboratory of Dr. Paessler conducted a follow-up study whereby a more concentrated CupriDyne formula (See CupriDyne Plus, below) was tested against the COVID-19 virus. In this study, the CupriDyne Plus completely inactivated SARS-CoV-2 (the COVID-19 virus) in 10 minutes – roughly the same performance observed with highly concentrated bleach. As a consequence of these highly promising results, we are seeking the regulatory approvals to sell a CupriDyne based product to combat the pandemic (see EPA Registration of CupriDyne Plus, below).

 

ONM Environmental - Industrial Odor and VOC Solutions

 

In 2020, we changed the name of our odor control subsidiary Odor-No-More, Inc., to ONM Environmental, Inc., to reflect the expansion of its work from odor control sales to more robust environmental services. Its flagship product, CupriDyne® Clean, reduces and eliminates tough odors and volatile organic compounds (“VOCs”) in various industrial settings. CupriDyne Clean is delivered through misting systems, sprayers, water trucks and similar water delivery systems designed, manufactured and installed by ONM. We believe the product is the number-one performing odor-control product in the market, and that it offers substantial savings to our customers compared with competing products. In response to customer demand for expanded services, ONM now holds General, Electrical, Plumbing and Low Voltage contractor licenses issued by the California Contractors State License Board, and offers a menu of services to landfills, transfer stations, wastewater treatment facilities as well as facilities in non-waste related industries. These services include engineering design, construction, installation, ongoing maintenance and on-site support services to assist our clients in the implementation and continued use of the various systems that deliver our liquid products in the field (such as misting systems).

 

Our customer base for our odor and VOC business was expanding prior to the COVID-19 crisis and we expect it to continue doing so as the United States recovers from the pandemic. We have been and expect to continue selling product to the largest solid waste handling companies in the country. Very recently, some of the capital projects that ONM previously had on hold due to logistical limitations imposed by the pandemic have begun to come back online, with decision-makers from these clients requesting that ONM resume work on these projects. We also have a number of potential partners actively engaged in commercial trials around the globe and we are actively in discussion with a number of groups to leverage our commercial focus through distribution partnerships.

 

In the fourth quarter of 2020, ONM Environmental acquired a deodorizing and sanitizing technology, called EcoMist®, that helps raise the customer care bar for solid waste collectors to treat all types of waste receptacles in real time during pick up. EcoMist® is a device installed directly onto any waste collection vehicle that automatically sprays odor control products and/or sanitizer into refuse bins or dumpsters during the waste collection process. ONM plans to test market the product directly with its major solid waste handling customers by packaging it with CupriDyne Clean. A video showing EcoMist® in operation can be viewed here: https://www.biolargo.com/ecomist-video. EcoMist® is easy to install and use – it works “out-of-the-box”, allowing customers to install the system themselves, and will thus not require a significant investment in logistics and servicing to support sales. ONM’s acquisition of EcoMist® is part of its strategy to grow revenues of its air quality control division through chemistry deployment systems that lead to more scalable sales of CupriDyne Clean. It also helps ensure ONM can provide the largest waste handling companies in the country with a broad range of tools to solve their odor and VOC control challenges in all facets of their business. ONM’s only obligation under the acquisition agreement is a 10% royalty on EcoMist® system sales.

 

 

Cannabis Industry

 

In 2019, we granted non-exclusive rights to Mabre Systems to sell our CupriDyne Clean product to the Cannabis industry under a private-label brand. Testing shows that CupriDyne Clean eliminates the odors emitted by Cannabis grow and production facilities. We have been installing CupriDyne Clean delivery misting systems for Mabre’s customers, and have over 20 facilities regularly buying product from our distributor. Mabre has expressed an intent to launch a consumer odor product based on CupriDyne Clean in the near future.

 

South Korean Joint Venture

 

On February 12, 2020, we executed a “Joint Venture Framework Agreement” with a leading wastewater treatment solution provider based in South Korea (BKT Co. Ltd., “BKT”), to create a South Korean entity that would manufacture odor and VOC control products based on our CupriDyne Clean products. We received a $350,000 investment from BKT and issued 1,593,087 shares of our common stock, and invested $100,000 into the joint venture for a 40% ownership share. BKT and its U.S. based subsidiary invested $150,000 into the joint venture for the remaining 60% ownership share. Although the joint venture established manufacturing and is marketing the product, the COVID-19 pandemic significantly impacted the expected growth of the company. In late 2020, the joint venture (under the name Odin) established corporate offices at the Korea Water Cluster, which is a new world-renowned water innovation campus located in Daegu, South Korea, a center for industrial innovation in Asia. The move positions Odin well to interface with other innovators in the water treatment sector as well as with industry leaders who may need Odin’s products for air quality control.

 

Full Service Environmental Engineering

 

Our subsidiary BioLargo Engineering, Science & Technologies, LLC (“BLEST”) offers full service environmental engineering to third parties and provides engineering support services to our internal teams to accelerate the commercialization of our technologies. Its website is found at www.BioLargoEngineering.com.

 

BLEST focuses its efforts in three areas:

 

 

providing engineering services to third-party clients;

 

 

supporting internal product development and business units’ services to customers (e.g., the AOS); and

 

 

advancing their own technical innovations such as the AEC.

 

The subsidiary is located in Oak Ridge (a suburb of Knoxville, Tennessee), and employs seven scientists and engineers who collectively worked together for almost 30 years and experience in diverse engineering fields. The team is led by Randall Moore, who served as Manager of Operations for Consulting and Engineering for the Knoxville office of CB&I Environmental & Infrastructure and was formerly a leader at The Shaw Group, Inc., a Fortune 500 global engineering firm. The other team members are also former employees of CB&I and Shaw. The team is highly experienced across multiple industries and they are considered experts in their respective fields, including chemical engineering, wastewater treatment (including design, operations, data gathering and data evaluation), process safety, energy efficiency, air pollution, design and control, technology evaluation, technology integration, air quality management & testing, engineering management, permitting, industrial hygiene, applied research and development, air testing, environmental permitting, HAZOP review, chemical processing, thermal design, computational fluid dynamics, mechanical engineering, mechanical design, NEPDES permitting, RCRA/TSCA compliance and permitting,  project management, storm water design & permitting, computer assisted design (CAD), bench chemistry, continuous emission monitoring system operator, data handling and evaluation and decommissioning and decontamination of radiological and chemical contaminated facilities.

 

BLEST established a partnership with Garratt-Callahan, a national industrial water treatment company, to develop and sell custom wastewater treatment equipment to recycle water from commercial facilities. They are also working with them to expand sales of other BioLargo products.

 

New TechnologyMineral Extraction

 

BLEST developed a proprietary and patent-pending process to extract valuable minerals from certain types of industrial waste. As a result of this invention, a client is planning a substantial long-term project expected to generate over $1B in revenues, while avoiding expensive soil remediation costs. As the client’s engineering services provider, and developer of the extraction technology, BLEST is in discussions with the client to secure its role as the project manager and/or lead engineer. We believe there are multiple similarly situated industrial waste sites across the country and around the world that would benefit from our newly developed process, and, as resources permit, we intend to explore these opportunities.

 

 

BioLargo Water and the Advanced Oxidation SystemAOS

 

BioLargo Water is our wholly owned subsidiary located on campus at the University of Alberta, Edmonton, Canada, that developed and is commercializing our Advanced Oxidation System (AOS).  The AOS is our patented water treatment device that generates a series of highly oxidative species of iodine and other molecules that, because of its proprietary configuration and inner constituents, allow it to eliminate pathogenic organisms and organic contaminants as water passes through the device. The key value proposition of the AOS is its ability to eliminate a wide variety of contaminants with high performance while consuming extremely low levels of input electricity and extremely low levels of chemistry inputs – a trait made possible by the complex set of highly oxidative iodine compounds generated within the AOS reactor. Our proof-of-concept studies and case studies have generated results that project the AOS will be more cost- and energy-efficient than commonly used advanced water treatment technologies such as UV, electro-chlorination, and ozonation. This value proposition may enable advanced water treatment in applications where it otherwise would have been prohibitively costly. Secondly, the AOS has been proven effective against certain soluble organic molecules, pharmaceuticals and a host of other micropollutants which are difficult to treat with other conventional tertiary water treatment technologies like UV. This characteristic of the AOS may offer a significant incentive for prospective customers to choose this technology over established incumbents because of the need in certain contexts to address these hard-to-treat contaminants, in addition to traditional targets of tertiary treatment like microorganisms.

 

Sunworks Farm Pilot

 

Our efforts to establish our first commercial pilot for the AOS system, at a poultry and livestock farm in Alberta, Canada, is progressing as planned. We expect to have installed a fully functional treatment train featuring our AOS water system at the client’s farm in the second quarter of 2021. When complete, the system will be the first of its kind to allow for the complete reuse of this industrial wastewater, allowing the client to significantly save on water costs and expand production. The project budget of approximately $600,000 will be funded in part by government grants and in part by the client. We expect the project to be successful, and to set a precedent for the AOS and BioLargo’s total water treatment solutions for future customers seeking water reuse, or even “zero liquid discharge” systems, and we believe will lead to follow-up projects with customers who follow Sunworks’ example.  

 

Municipal Wastewater Treatment Pilot - Montreal

 

BioLargo Water is working on a second commercial-scale AOS demonstration pilot, to be installed at a municipal wastewater treatment facility near Montreal, Quebec, to be run in partnership with acclaimed water experts at the Centre des Technologies de L’Eau (CTE). BLEST engineers have already built and delivered this commercial-scale AOS unit to the site near Montreal, and the project is expected to begin collecting important data throughout the first quarter of 2021. The purpose of the project is to assess the AOS (and eventually, an AEC unit to be added on to the treatment train) as effective, cost-efficient, and complementary solutions for disinfecting and eliminating a broad range of recalcitrant contaminants from municipal wastewater in an operating wastewater treatment plant. It is our belief that once these pre-commercial pilots have concluded with the AOS, our ability to entice major water industry players to partner with BioLargo Water to accelerate market adoption of the AOS will be increased dramatically.

 

In late 2019, BioLargo Water commenced a Regulation Crowdfunding offering in an attempt to raise internal capital to fund its operations. In 2020, the platform on which the offering was being marketed paused its operations, and we elected to place the effort on hold until such time as the platform was more well established. We continue to monitor and reevaluate the opportunity to utilize this funding source. 

 

Clyra Medical Technologies

 

Clyra Medical Technologies, Inc. is our partially owned subsidiary creating medical products based on our technology.

 

 

When the COVID-19 crisis began, we immediately responded by supporting the team at Clyra Medical to develop a product that could help frontline workers battle the pandemic. In response, they developed Clyraguard Personal Protection Spray. Testing and peer-reviewed published data confirmed that Clyraguard inactivates the SARS CoV-2 coronavirus. The product was registered with the FDA as a Class I general purpose disinfectant, and initially sales were brisk. After consultation with legal and regulatory advisors, we decided that that products claims required an EPA registration, and sales were stopped. We are actively working on this now (see CupriDyne Plus, below).

 

Clyra is preparing to launch a prescription-only product to be used by orthopedic surgeons to reduce infections in knee and hip replacement surgeries.

 

CupriDyne Plus

 

At the outset of the Covid-19 pandemic, we set out to revisit and modify the CupriDyne technology with the goal of creating a powerful yet comparatively safer, non-toxic, and environmentally friendly disinfectant and/or surface sanitizer. The result of this redevelopment process, which involved over 500 hours by our engineers and scientists, was “CupriDyne Plus”, a product that delivers a potent concentration of the active ingredient iodine (I2) as compared to traditional CupriDyne based formulations, meaning it can achieve much faster results.

 

EPA Registration of CupriDyne Plus

 

We are actively working to obtain an EPA registration for CupriDyne Plus for a number of different applications. CupriDyne Plus has the potential to offer a safer, more environmentally friendly alternative to bleach and other common antimicrobials for applications like hard surface disinfection, sanitization of non-porous non-food contact surfaces, disinfection of air, textiles, and more. Our scientists have conducted many of the tests required for EPA registration. Based on our extensive work, we are confident it meets the minimum performance requirements required for EPA registration as a disinfectant and/or surface sanitizer. We have met with and presented data to officials at the EPA for the purpose of refining our product and determining additional data requirements, and have retained a firm specializing in EPA registration work to help us through the process. While we are not able to predict the results of any EPA application we submit, or the time it will take to complete the process, we believe the market opportunities are large, with the U.S. market for surface disinfectants coming in at greater than $3.4 billion (https://www.grandviewresearch.com/industry-analysis/surface-disinfectant-market). 

 

Conclusion

 

BioLargo has advanced its technologies and infrastructure to achieve a critical mass to capitalize on its commercial efforts and have a positive impact around the world with clean water, clean air, and infection control solutions. The company presents a scalable business model that targets high-impact cleantech market opportunities. We leverage our considerable scientific, engineering, and entrepreneurial talent to monetize our technologies and ensure high-quality customer service and increased revenue potential. We seek to unlock the value of our portfolio of disruptive technologies to advance our mission to “make life better” and continue creating shareholder value.

 

Intellectual Property

 

We have 21 patents issued, including 19 in the United States, and multiple pending. We believe these patents provide a foundation from which to continue building our patent portfolio, and we believe that our technology is sufficiently useful and novel that we have a reasonable basis upon which to rely on our patent protections. We also rely on trade secrets and technical know-how to establish and maintain additional protection of our intellectual property. As our capital resources permit, we expect to expand our patent protection as we continue to refine our inventions as well as make new discoveries. See the detailed discussion below of our patent portfolio.

 

We regard our intellectual property as critical to our ultimate success. Our goal is to obtain, maintain and enforce patent protection for our products and technologies in geographic areas of commercial interest and to protect our trade secrets and proprietary information through laws and contractual arrangements.

 

 

Our Chief Science Officer, Mr. Kenneth R. Code, has been involved in the research and development of the technology since 1997. He has participated in the Canadian Federal Scientific Research and Experimental Development program, and he was instrumental in the discovery, preparation and filing of the first technology patents. He has worked with manufacturers, distributors and suppliers in a wide variety of industries to gain a full appreciation of the potential applications and the methodologies applicable to our technology for their manufacture and performance. He continues to research methods and applications to continue to expand the potential uses of our technology as well as work to uncover new discoveries that may provide additional commercial applications to help solve real world problems in the field of disinfection.

 

We incurred approximately $1,300,000 in expense related to our research and development activities in 2020, a decrease of approximately $150,000 compared with the prior year. We increased research and development to develop products in response to the COVID-19 pandemic, and decreased in other areas as our water treatment technologies have neared commercialization.

 

We believe that our suite of intellectual property covers the presently targeted major areas of focus for our licensing strategy. The description of our intellectual property, at present, is as follows:

 

U.S. Patents

 

●            U.S. Patent 10,238,990, issued on March 26, 2019, and 10,051,866, issued on August 21, 2018, which protect our AOS system.

 

●            U.S. Patent 10,046,078, issued on August 14, 2018, relating to the misting systems that eliminate odors in waste transfer stations, landfills, and other waste handling facilities.

 

●            U.S. Patent 9,883,653 issued on February 8, 2018, which encompasses a litter composition used in the absorption of animal wastes.

 

●            US Patent 9,414,601 granted August 16, 2016, relating to the use of an article for application to a surface to provide antimicrobial and/or anti-odor activity. At least one of the reagents is coated with a water-soluble, water dispersible or water-penetrable covering that prevents ambient conditions of 50% relative humidity at 25ºC from causing more than 10% of the total reagents exposed to the ambient conditions from reacting in a twenty-four hour period.

 

●            U.S. Patent 8,846,067, issued on September 30, 2014, which encompasses a method of treating a wound or burn on tissue to reduce microbe growth about a wound comprising applying an antimicrobial composition to the wound or burn on tissue using a proprietary stable iodine gel or liquid. This patent covers our technology as used in products being developed by our subsidiary, Clyra Medical Technologies.

 

●            U.S. Patent 8,757,253, issued on June 24, 2014, relating to the moderation of oil extraction waste environments.

 

●            U.S. Patent 8,734,559, issued on May 27, 2014, relating to the moderation of animal waste environments.

 

●            U.S. Patent 8,679,515 issued on March 25, 2014, titled “Activated Carbon Associated with Alkaline or Alkali Iodide,” which provides protection for our BioLargo® AOS filter.

 

●            U.S. Patent 8,642,057, issued on February 14, 2014, titled “Antimicrobial and Antiodor Solutions and Delivery Systems,” relating to our liquid antimicrobial solutions, including our gels, sprays and liquids imbedded into wipes and other substrates.

 

●            U.S. Patent 8,574,610, issued on November 5, 2013, relating to flowable powder compositions, including our cat litter additive.

 

 

●            U.S. Patent 8,257,749, issued on September 4, 2012, relating to the use of our technology as protection of against antimicrobial activity in environments that need to be protected or cleansed of microbial or chemical material. These environments include closed and open environments and absorbent sheet materials that exhibit stability until activated by aqueous environments. The field also includes novel particle technology, coating technology or micro-encapsulation technology to control the stability of chemicals that may be used to kill or inhibit the growth of microbes to water vapor or humidity for such applications.

 

●            U.S. Patent 8,226,964, issued on July 24, 2012, relating to use of our technology as a treatment of residue, deposits or coatings within large liquid carrying structures such as pipes, drains, ducts, conduits, run-offs, tunnels and the like, using iodine, delivered in a variety of physical forms and methods, including using its action to physically disrupt coatings. The iodine’s disruptive activity may be combined with other physical removal systems such as pigging, scraping, tunneling, etching or grooving systems or the like.

 

●            U.S. Patent 8,021,610, issued on September 20, 2011, titled “System providing antimicrobial activity to an environment,” relating to the reduction of microbial content in a land mass. Related to this patent are patents held in Canada and the European Union.

 

●            U.S. Patent 7,943,158, issued on May 17, 2011, titled “Absorbent systems providing antimicrobial activity,” relating to the reduction of microbial content by providing molecular iodine to stabilized reagents.

 

●            U.S. Patent 7,867,510, issued on January 11, 2011, titled “Material having antimicrobial activity when wet,” relating to articles for delivering stable iodine-generating compositions.

 

Pending Patent Applications

 

Most recently, we filed two patent applications in the United States for our advanced wound care formulas. The inventions in these applications form the basis for the work at Clyra Medical and the products for which that subsidiary intends to seek FDA approval. In addition to these applications, we have filed patent applications in multiple foreign countries, including the European Union, pursuant to the PCT, and other provisional applications.

 

Subject to adequate financing, we intend to continue to expand and enhance our suite of intellectual property through ongoing focus on product development, new intellectual property development and patent applications, and further third-party testing and validations for specific areas of focus for commercial exploitation. We currently anticipate that additional patent applications will be filed during the next 12 months with the USPTO and the PCT, although we are uncertain of the cost of such patent filings, which will depend upon the number of such applications prepared and filed. The expense associated with seeking patent rights in multiple foreign countries is expensive and will require substantial ongoing capital resources. However, we cannot give any assurance that adequate capital will be available. Without adequate capital resources, we will be forced to abandon patent applications and irrevocably lose rights to our technologies.

 

Our Company

 

BioLargo, Inc. is a corporation organized under the laws of the state of Delaware. Our common stock is quoted on the OTC Markets OTCQB “Venture Marketplace” under the trading symbol “BLGO”.

 

Our corporate offices are located at 14921 Chestnut St., Westminster, California 92683. We have a research facility and offices at the University of Alberta in Canada, and our engineering team is located at 105 Fordham Road in Oak Ridge, Tennessee. Our telephone number is (888) 400-2863. We operate through multiple wholly-owned subsidiary entities, including: BioLargo Life Technologies, Inc., to hold our intellectual property; ONM Environmental, Inc., to manufacture, market, sell and distribute our odor control products; BioLargo Water Investment Group, Inc., which is the sole owner of a Canadian subsidiary, BioLargo Water, Inc., for our Canadian research and development and AOS commercialization operations; BioLargo Development Corp., through which our employees are employed; and BioLargo Engineering, Science & Technologies, LLC, our full service engineering firm in Oak Ridge, Tennessee. Additionally, we own 45% of Clyra Medical Technologies, Inc., formed to develop and market medical products based on our technology.

 

 

Our principal corporate website is www.BioLargo.com. We also maintain a blog at www.BioLargo.blogspot.com. Websites concerning our subsidiaries are www.ONMEnvironmental.com, www.CupriDyne.com, www.ClyraMedical.com, www.BioLargoWater.com, and www.BioLargoEngineering.com. The information on our websites and blog are not, and shall not be deemed to be, a part of this Annual Report on Form 10-K.

 

Executive Officers

 

As of December 31, 2020, and as the date of this report, our executive officers were:

 

 

Dennis P. Calvert: Chief Executive Officer, President and Chairman of the Board

 

 

Charles K. Dargan II: Chief Financial Officer

 

 

Joseph L. Provenzano: Corporate Secretary and Vice President of Operations

 

Our operational subsidiaries are led by:

 

Subsidiary

President

ONM Environmental, Inc.

Joseph L. Provenzano

BioLargo Engineering, Science & Technologies, LLC

Randall Moore

BioLargo Water, Inc. (Canada)

Richard Smith

Clyra Medical Technologies, Inc.

Steven V. Harrison

 

 

Employees

 

As of December 31, 2020, we had 27 full time employees. Our employees including professional engineers, masters of engineering, and PhDs, as well as sales, support and administrative personnel. We also utilize consultants and independent contractors on an as-needed basis who provide certain specified services, such as professional engineers used from time to time by our engineering group in Tennessee.

 

 

ITEM 1A.          RISK FACTORS

 

Our future results of operations, financial condition and liquidity and the market price for our securities are subject to numerous risks, many of which are driven by factors that we cannot control. The following cautionary discussion of risks, uncertainties and assumptions relevant to our business includes factors we believe could cause our actual results to differ materially from expected and historical results. Other factors beyond those listed below, including factors unknown to us and factors known to us which we have not currently determined to be material, could also adversely affect our business, results of operations, financial condition, prospects and cash flows. Also see “Forward-looking Statements” above.

 

Risks Relating to our Business

 

COVID-19

 

The Covid-19 crisis creates an environment in which no person can be certain about what is next. The global reach and impact are far reaching and place extreme pressure on financing, sales, accounts receivable collection cycles, and any growth plan. We believe the Covid-19 virus crisis may have a delaying effect on our plans for growth and expansion. We urge the reader to consider our forward-looking statements in light of the extraordinary circumstances of today’s business, social and economic climate. While our company is mobilizing to be a solutions provider to help inhibit the spread of Covid-19, these business plans are not mature and may be more difficult that we expect. While it may be reasonable to assume that the crisis will subside, we cannot be certain about the timing and a host of impacts that cannot be easily predicted to occur.

 

Our limited operating history makes evaluation of our business difficult.

 

We have limited and only nominal historical financial data upon which to base planned operating expenses or forecast accurately our future operating results. Because our operations are not yet sufficient to fund our operational expenses, we rely on investor capital to fund operations. Our limited operational history makes it difficult to forecast the need for future financing activities. Further, our limited operating history will make it difficult for investors and securities analysts to evaluate our business and prospects. Our failure to address these risks and difficulties successfully could seriously harm us.

 

We have never generated significant revenues, have a history of losses, and cannot assure you that we will ever become or remain profitable.

 

We have not yet generated enough revenue or gross profit from operations to fund our expenses, and, accordingly, we have incurred net losses every year since our inception. We have funded the majority of our activities through the issuance of convertible debt or equity securities. Although we are devoting more energy and money to our sales and marketing activities, we continue to anticipate net losses and negative cash flow for the foreseeable future. Our ability to reach positive cash flow depends on many factors, including our ability to fund sales and marketing activities, and the rate of client adoption. There can be no assurance that our revenues will be sufficient for us to become profitable in 2021 or future years, or thereafter maintain profitability. We may also face unforeseen problems, difficulties, expenses or delays in implementing our business plan, including regulatory hurdles.

 

Our cash requirements are significant. We will continue to require additional financing to sustain our operations and without it we may not be able to continue operations.

 

Our cash requirements and expenses continue to be significant. Our net cash used in continuing operations for the year ended December 31, 2020, was $4,154,000, almost $350,000 per month on average. During 2020, we generated $2,432,000 in consolidated gross revenues, about $200,000 per month on average. Thus, in order to become profitable, we must significantly increase our revenues. Although our revenues are increasing through sales of our products and from our engineering division, we expect to continue to use cash in 2021 as it becomes available and to continue to sell our securities to fund operations.

 

 

At December 31, 2020, we had working capital deficit of $2,039,000. Our auditor’s report for the year ended December 31, 2020 includes an explanatory paragraph to their audit opinion stating that our recurring losses from operations and working capital deficiency raise substantial doubt about our ability to continue as a going concern. We do not currently have sufficient financial resources to fund our operations or those of our subsidiaries. Therefore, we need additional financing to continue these operations.

 

We have relied on private securities offerings, as well as Lincoln Park Capital (see below), to provide cash needed to close the gap between operational revenue and expenses. Our ability to rely on private financing may change if the United States enters a recession, if the Dow Industrial Average or Nasdaq composite decline significantly, if interest rates rise, if real estate declines, or many other factors that impact private investors’ willingness to invest in high-risk companies. Thus, while we have been able to rely on private investments in the past, we may not be able to do so in the near future.

 

In the year ended December 31, 2020, we relied on our agreements with Lincoln Park Capital to sell shares and raise capital, as well as other private investors. In total, received almost $3 million from stock sales. In the year ended December 31, 2020, we issued more than 17 million shares of stock to these investors. In the year ended December 31, 2019, we had received more than $4 million from the sale of convertible notes, and in the year ended December 31, 2020, we issued more than 30 million shares of stock to convert those notes to equity and fund operations and R&D for the year. These issuances are dilutive to our existing stockholders. We intend to continue these financing activities, and thus intend to continue to dilute the existing stockholders.

 

We regularly issue stock, or stock options, instead of cash, to pay some of our operating expenses. These issuances are dilutive to our existing stockholders.

 

We are party to agreements that provide for the payment of, or permit us to pay at our option, securities rather than cash in consideration for services provided to us. We include these provisions in agreements to allow us to preserve cash. We anticipate that we will continue to do so in the future. All such issuances preserve our cash reserves, but are also dilutive to our stockholders because they increase (and will increase in the future) the total number of shares of our common stock issued and outstanding, even though such arrangements assist us with managing our cash flow. These issuances also increase the expense amount recorded.

 

Our stockholders face further potential dilution in any new financing.

 

In the year ended December 31, 2020, we issued almost 60 million shares of our common stock, almost all which was issued for current and past financing activities that included our retiring debt of almost $5 million plus funding current operating activities and R&D for the year. Our private securities offerings typically provide for convertible securities, including notes and warrants. Those warrants often include provisions that require investors to pay for the underlying shares with cash, which if executed would generate working capital for the company. Any additional capital that we raise would dilute the interest of the current stockholders and any persons who may become stockholders before such financing. Given the price of our common stock, such dilution in any financing of a significant amount could be substantial.

 

We may be required to seek stockholder approval to amend our charter to increase our authorized number of shares

 

We have approximately 230 million common shares outstanding. We have reserved for further issuance almost 100 million shares: 25 million to Lincoln Park, 26 million in our 2018 Equity Plan, 17 million to “non-plan” option holders, and 30 million to warrant holders. As our Certificate of Incorporation authorizes us to issue 400 million shares, we currently have 70 million shares available. If we run out of shares to issue, the Company would be required to secure stockholder approval to amend the charter and increase the authorized number of shares. If our stockholders do not agree to increase the number of shares our Certificate of Incorporation authorizes us to issue, we may have to cease further financing activities. If we were forced to do so, we would run out of cash and significantly curtail our operations.

 

 

Our stockholders face further potential adverse effects from the terms of any preferred stock that may be issued in the future.

 

Our certificate of incorporation authorizes 50 million shares of preferred stock. None are outstanding as of the date hereof. In order to raise capital to meet expenses or to acquire a business, our board of directors may issue additional stock, including preferred stock. Any preferred stock that we may issue may have voting rights, liquidation preferences, redemption rights and other rights, preferences and privileges. The rights of the holders of our common stock will be subject to, and in many respects subordinate to, the rights of the holders of any such preferred stock. Furthermore, such preferred stock may have other rights, including economic rights, senior to our common stock that could have a material adverse effect on the value of our common stock. Preferred stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, can also have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock, thereby delaying, deferring or preventing a change in control of our company.  

 

Our revenue growth rate may not be indicative of future performance and may slow over time.

 

Although we have grown rapidly over the last several years, our revenue growth rate may slow over time for a number of reasons, including increasing competition, market saturation, slowing demand for our products and services, increasing regulatory costs and challenges, the impact of COVID-19, and failure to capitalize on growth opportunities.

 

We do not have contracts with customers that require the purchase of a minimum amount of our products.

 

None of our customers provide us with firm, long-term or short-term volume purchase commitments. As a result, we could have periods during which we have no or limited orders for our products but will continue to have fixed costs. We may not be able to find new customers in a timely manner if we experience no or limited purchase orders. Periods of no or limited purchase orders for our products, particularly from one or more of our four largest customers, could adversely affect our business, financial condition and results of operations.

 

There are several specific business opportunities we are considering in further development of our business. None of these opportunities is yet the subject of a definitive agreement, and many of these opportunities will require additional funding obligations on our part, for which funding is not currently in place.

 

In furtherance of our business plan, we are presently considering a number of opportunities to promote our business, to further develop and broaden, and to license, our technology with third parties. While discussions are underway with respect to such opportunities, there are no definitive agreements in place with respect to any of such opportunities at this time. There can be no assurance that any of such opportunities being discussed will result in definitive agreements or, if definitive agreements are entered into, that they will be on terms that are favorable to us.  

 

Moreover, should any of these opportunities result in definitive agreements being executed or consummated, we may be required to expend additional monies above and beyond our current operating budget to promote such endeavors. No such financing is in place at this time for such endeavors, and we cannot assure you that any such financing will be available, or if it is available, whether it will be on terms that are favorable to our company. 

 

 

We expect to incur future losses and may not be able to achieve profitability.

 

Although we are generating revenue from the sale of our products and from providing services, and we expect to generate revenue from new products we are introducing, and eventually from other license or supply agreements, we anticipate net losses and negative cash flow to continue for the foreseeable future until our products are expanded in the marketplace and they gain broader acceptance by resellers and customers. Our current level of sales is not sufficient to support the financial needs of our business. We cannot predict when or if sales volumes will be sufficiently large to cover our operating expenses. We intend to expand our marketing efforts of our products as financial resources are available, and we intend to continue to expand our research and development efforts. Consequently, we will need to generate significant additional revenue or seek additional financings to fund our operations. This has put a proportionate corresponding demand on capital. Our ability to achieve profitability is dependent upon our efforts to deliver a viable product and our ability to successfully bring it to market, which we are currently pursuing. Although our management is optimistic that we will succeed in licensing our technology, we cannot be certain as to timing or whether we will generate sufficient revenue to be able to operate profitably. If we cannot achieve or sustain profitability, then we may not be able to fund our expected cash needs or continue our operations. If we are not able to devote adequate resources to promote commercialization of our technology, then our business plans will suffer and may fail.  

 

Because we have limited resources to devote to sales, marketing and licensing efforts with respect to our technology, any delay in such efforts may jeopardize future research and development of technologies and commercialization of our technology. Although our management believes that it can finance commercialization efforts through sales of our securities and possibly other capital sources, if we do not successfully bring our technology to market, our ability to generate revenues will be adversely affected.  

 

Our internal controls are not effective.

 

We have determined that our disclosure controls and procedures and our internal control over financial reporting are currently not effective. The lack of effective internal controls, has not yet, but could in the future, materially adversely affect our financial condition and ability to carry out our business plan. As more financial resources come available, we need to invest in additional personnel to better manage the financial reporting processes.

 

If we are not able to manage our anticipated growth effectively, we may not become profitable.

 

We anticipate that expansion will continue to be required to address potential market opportunities for our technologies and our products. Our existing infrastructure is limited. While we believe our current manufacturing processes as well as our office and warehousing provide the basic resources to expand to sales of  more than $2 million per month, our infrastructure will need more staffing to support manufacturing, customer service, administration as well as sales/account executive functions. There can be no assurance that we will have the financial resources to create new infrastructure, or that any such infrastructure will be sufficiently scalable to manage future growth, if any. There also can be no assurance that, if we invest in additional infrastructure, we will be effective in expanding our operations or that our systems, procedures or controls will be adequate to support such expansion. In addition, we will need to provide additional sales and support services to our partners if we achieve our anticipated growth with respect to the sale of our technology for various applications. Failure to properly manage an increase in customer demands could result in a material adverse effect on customer satisfaction, our ability to meet our contractual obligations, and our operating results.  

 

Some of the products incorporating our technology will require regulatory approval.

 

The products in which our technology may be incorporated have both regulated and non-regulated applications. The regulatory approvals for certain applications may be difficult, impossible, time consuming and/or expensive to obtain. While our management believes such approvals can be obtained for the applications contemplated, until those approvals from the FDA or the EPA or other regulatory bodies, at the federal and state levels, as may be required are obtained, we may not be able to generate commercial revenues for regulated products. Certain specific regulated applications and their use require highly technical analysis and additional third-party validation and will require regulatory approvals from organizations like the FDA. Certain applications may also be subject to additional state and local agency regulations, increasing the cost and time associated with commercial strategies. Additionally, most products incorporating our technology that may be sold in the European Union (“EU”) will require EU and possibly also individual country regulatory approval. All such approvals, including additional testing, are time-consuming, expensive and do not have assured outcomes of ultimate regulatory approval. 

 

 

We need to outsource and rely on third parties for the manufacture of the chemicals, material components or delivery apparatus used in our technology, and part of our future success will be dependent on the timeliness and effectiveness of the efforts of these third parties.

 

We do not have the required financial and human resources or capability to manufacture the chemicals necessary to make our odor control products. Our business model calls for the outsourcing of the manufacture of these chemicals in order to reduce our capital and infrastructure costs as a means of potentially improving our financial position and the profitability of our business. Accordingly, we must enter into agreements with other companies that can assist us and provide certain capabilities, including sourcing and manufacturing, which we do not possess. We may not be successful in entering into such alliances on favorable terms or at all. Even if we do succeed in securing such agreements, we may not be able to maintain them. Furthermore, any delay in entering into agreements could delay the development and commercialization of our technology or reduce its competitiveness even if it reaches the market. Any such delay related to such future agreements could adversely affect our business.  While we have been able to secure materials and supplies like plastic containers through the COVID-19 crisis, we have not assurances that our ability to purchase in large quantities on a continual basis.

 

If any party to which we have outsourced certain functions fails to perform its obligations under agreements with us, the commercialization of our technology could be delayed or curtailed.

 

To the extent that we rely on other companies to manufacture the chemicals used in our technology, or sell or market products incorporating our technology, we will be dependent on the timeliness and effectiveness of their efforts. If any of these parties does not perform its obligations in a timely and effective manner, the commercialization of our technology could be delayed or curtailed because we may not have sufficient financial resources or capabilities to continue such efforts on our own.

 

We rely on a small number of key supply ingredients in order to manufacture CupriDyne Clean.

 

The raw ingredients used to manufacture CupriDyne Clean are readily available from multiple suppliers. However, commodity prices for these ingredients can vary significantly, and the margins that we are able to generate could decline if prices rise. If our manufacturing costs rise significantly, we may be forced to raise the prices for our products, which may reduce their acceptance in the marketplace.

 

If our technology or products incorporating our technology do not gain market acceptance, it is unlikely that we will become profitable.

 

The potential markets for products into which our technology can be incorporated are rapidly evolving, and we have many successful competitors including some of the largest and most well-established companies in the world. The commercial success of products incorporating our technology will depend on the adoption of our technology by commercial and consumer end users in various fields.

 

Market acceptance may depend on many factors, including:

 

 

the willingness and ability of consumers and industry partners to adopt new technologies from a company with little or no history in the industry;

 

 

our ability to convince potential industry partners and consumers that our technology is an attractive alternative to other competing technologies;

 

 

our ability to license our technology in a commercially effective manner;

 

 

our ability to continue to fund operations while our products move through the process of gaining acceptance, before the time in which we are able to scale up production to obtain economies of scale; and

 

 

 

our ability to overcome brand loyalties.

 

If products incorporating our technology do not achieve a significant level of market acceptance, then demand for our technology itself may not develop as expected, and, in such event, it is unlikely that we will become profitable.

 

Any revenues that we may earn in the future are unpredictable, and our operating results are likely to fluctuate from quarter to quarter.

 

We believe that our future operating results will fluctuate due to a variety of factors, including:

 

 

delays in product development by us or third parties;

 

 

market acceptance of products incorporating our technology;

 

 

changes in the demand for, and pricing of, products incorporating our technology;

 

 

competition and pricing pressure from competitive products; and

 

 

expenses related to, and the results of, proceedings relating to our intellectual property.

 

We expect our operating expenses will continue to fluctuate significantly in 2021 and beyond, as we continue our research and development and increase our marketing and licensing activities. Although we expect to generate revenues from licensing our technology in the future, revenues may decline or not grow as anticipated, and our operating results could be substantially harmed for a particular fiscal period. Moreover, our operating results in some quarters may not meet the expectations of stock market analysts and investors. In that case, our stock price most likely would decline.

 

Some of our revenue may be dependent on the award of new contracts from the U.S. government, which we do not directly control.

 

Some of our revenue has been generated from sales to the U.S. Defense Logistics Agency through a bid process in response to request for bids. The timing and size of requests for bids is unpredictable and outside of our control. The number of other companies competing for these bids is also unpredictable and outside of our control. In the event of more competition for these awards, we may have to reduce our margins. These variables make it difficult to predict when or if we will sell more products to the U.S. government, which in turns makes it difficult to stock inventory and purchase raw materials.

 

We have limited product distribution experience, and we rely in part on third parties who may not successfully sell our products.

 

We have limited product distribution experience and rely in part on product distribution arrangements with third parties. In our future product offerings, we may rely solely on third parties for product sales and distribution. We also plan to license our technology to certain third parties for commercialization of certain applications. We expect to enter into additional distribution agreements and licensing agreements in the future, and we may not be able to enter into these additional agreements on terms that are favorable to us, if at all. In addition, we may have limited or no control over the distribution activities of these third parties. These third parties could sell competing products and may devote insufficient sales efforts to our products. As a result, our future revenues from sales of our products, if any, will depend on the success of the efforts of these third parties.

 

 

We may not be able to attract or retain qualified senior personnel.

 

We believe we are currently able to manage our current business with our existing management team. However, as we expand the scope of our operations, we will need to obtain the full-time services of additional senior management and other personnel. Competition for highly-skilled personnel is intense, and there can be no assurance that we will be able to attract or retain qualified senior personnel. Our failure to do so could have an adverse effect on our ability to implement our business plan. As we add full-time senior personnel, our overhead expenses for salaries and related items will increase from current levels and, depending upon the number of personnel we hire and their compensation packages, these increases could be substantial.

 

If we lose our key personnel or are unable to attract and retain additional personnel, we may be unable to achieve profitability.

 

Our future success is substantially dependent on the efforts of our senior management, particularly Dennis P. Calvert, our president and chief executive officer. The loss of the services of Mr. Calvert or other members of our senior management may significantly delay or prevent the achievement of product development and other business objectives. Because of the scientific nature of our business, we depend substantially on our ability to attract and retain qualified marketing, scientific and technical personnel. There is intense competition among specialized and technologically-oriented companies for qualified personnel in the areas of our activities. If we lose the services of, or do not successfully recruit, key marketing, scientific and technical personnel, then the growth of our business could be substantially impaired. At present, we do not maintain key man insurance for any of our senior management, although management is evaluating the potential of securing this type of insurance in the future as may be available. 

 

Nondisclosure agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

 

In order to protect our proprietary technology and processes, we rely in part on nondisclosure agreements with our employees, potential licensing partners, potential manufacturing partners, testing facilities, universities, consultants, agents and other organizations to which we disclose our proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position. Since we rely on trade secrets and nondisclosure agreements, in addition to patents, to protect some of our intellectual property, there is a risk that third parties may obtain and improperly utilize our proprietary information to our competitive disadvantage. We may not be able to detect unauthorized use or take appropriate and timely steps to enforce our intellectual property rights. 

 

We may become subject to product liability claims.

 

As a business that manufactures and markets products for use by consumers and institutions, we may become liable for any damage caused by our products, whether used in the manner intended or not. Any such claim of liability, whether meritorious or not, could be time-consuming and/or result in costly litigation. Although we maintain general liability insurance, our insurance may not cover potential claims of the types described above and may not be adequate to indemnify for all liabilities that may be imposed. Any imposition of liability that is not covered by insurance or is in excess of insurance coverage could harm our business and operating results, and you may lose some or all of any investment you have made, or may make, in our company. 

 

Litigation or the actions of regulatory authorities may harm our business or otherwise distract our management.

 

Substantial, complex or extended litigation could cause us to incur major expenditures and distract our management. For example, lawsuits by employees, former employees, investors, stockholders, partners, customers or others, or actions taken by regulatory authorities, could be very costly and substantially disrupt our business. As a result of our financing activities over time, and by virtue of the number of people that have invested in our company, we face increased risk of lawsuits from investors. Such lawsuits or actions could from time to time be filed against our company and/or our executive officers and directors. Such lawsuits and actions are not uncommon, and we cannot assure you that we will always be able to resolve such disputes or actions on terms favorable to our company.

 

 

If we suffer negative publicity concerning the safety or efficacy of our products, our sales may be harmed.

 

If concerns should arise about the safety or efficacy of any of our products that are marketed, regardless of whether or not such concerns have a basis in generally accepted science or peer-reviewed scientific research, such concerns could adversely affect the market for those products. Similarly, negative publicity could result in an increased number of product liability claims, whether or not those claims are supported by applicable law.

 

The licensing of our technology or the manufacture, use or sale of products incorporating our technology may infringe on the patent rights of others, and we may be forced to litigate if an intellectual property dispute arises.

 

If we infringe or are alleged to have infringed another party’s patent rights, we may be required to seek a license, defend an infringement action or challenge the validity of the patents in court. Patent litigation is costly and time consuming. We may not have sufficient resources to bring these actions to a successful conclusion. In addition, if we do not obtain a license, do not successfully defend an infringement action or are unable to have infringed patents declared invalid, we may:

 

 

incur substantial monetary damages;

 

 

encounter significant delays in marketing our current and proposed product candidates;

 

 

be unable to conduct or participate in the manufacture, use or sale of product candidates or methods of treatment requiring licenses;

 

 

lose patent protection for our inventions and products; or

 

 

find our patents are unenforceable, invalid or have a reduced scope of protection

 

Parties making such claims may be able to obtain injunctive relief that could effectively block our company’s ability to further develop or commercialize our current and proposed product candidates in the United States and abroad and could result in the award of substantial damages. Defense of any lawsuit or failure to obtain any such license could substantially harm our company. Litigation, regardless of outcome, could result in substantial cost to, and a diversion of efforts by, our company.

 

Our patents are expensive to maintain, our patent applications are expensive to prosecute, and thus we are unable to file for patent protection in many countries.

 

Our ability to compete effectively will depend in part on our ability to develop and maintain proprietary aspects of our technology and either to operate without infringing the proprietary rights of others or to obtain rights to technology owned by third parties. Pending patent applications relating to our technology may not result in the issuance of any patents or any issued patents that will offer protection against competitors with similar technology. We must employ patent attorneys to prosecute our patent applications both in the United States and internationally. International patent protection requires the retention of patent counsel and the payment of patent application fees in each foreign country in which we desire patent protection, on or before filing deadlines set forth by the International Patent Cooperation Treaty (“PCT”). We therefore choose to file patent applications only in foreign countries where we believe the commercial opportunities require it, considering our available financial resources and the needs for our technology. This has resulted, and will continue to result, in the irrevocable loss of patent rights in all but a few foreign jurisdictions.

 

 

Patents we receive may be challenged, invalidated or circumvented in the future, or the rights created by those patents may not provide a competitive advantage. We also rely on trade secrets, technical know-how and continuing invention to develop and maintain our competitive position. Others may independently develop substantially equivalent proprietary information and techniques or otherwise gain access to our trade secrets.

 

We are subject to risks related to future business outside of the United States.

 

Over time, we may develop business relationships outside of North America, and as those efforts are pursued, we will face risks related to those relationships such as:

 

 

foreign currency fluctuations;

 

 

unstable political, economic, financial and market conditions;

 

 

import and export license requirements;

 

 

trade restrictions;

 

 

increases in tariffs and taxes;

 

 

high levels of inflation;

 

 

restrictions on repatriating foreign profits back to the United States;

 

 

greater difficulty collecting accounts receivable and longer payment cycles;

 

 

less favorable intellectual property laws, and the lack of intellectual property legal protection;

 

 

regulatory requirements;

 

 

unfamiliarity with foreign laws and regulations; and

 

 

changes in labor conditions and difficulties in staffing and managing international operations.

 

The volatility of certain raw material costs may adversely affect operations and competitive price advantages for products that incorporate our technology.

 

Most of the chemicals and other key materials that we use in our business, such as minerals, fiber materials and packaging materials, are neither generally scarce nor price sensitive, but prices for such chemicals and materials can be cyclical. Supply and demand factors, which are beyond our control, generally affect the price of our raw materials. We try to minimize the effect of price increases through production efficiency and the use of alternative suppliers, but these efforts are limited by the size of our operations. If we are unable to minimize the effects of increased raw material costs, our business, financial condition, results of operations and cash flows may be materially adversely affected.

 

Certain of our products sales historically have been highly impacted by fluctuations in seasons and weather.

 

Industrial odor control products have proven highly effective in controlling volatile organic compounds that are released as vapors produced by decomposing waste material. Such vapors are produced with the highest degree of intensity in temperatures between 40 degrees Fahrenheit (5 degrees Celsius) and 140 degrees Fahrenheit (60 degrees Celsius). When weather patterns are cold or in times of precipitation, our clients are less prone to use our odor control products, presumably because such vapors are less noticeable or, in the case of precipitation, can be washed away or altered. This leads to unpredictability in use and sales patterns for, especially, our CupriDyne Clean product line which accounts for over one-half our total sales.

 

 

The cost of maintaining our public company reporting obligations is high.

 

We are obligated to maintain our periodic public filings and public reporting requirements, on a timely basis, under the rules and regulations of the SEC. In order to meet these obligations, we will need to continue to raise capital. If adequate funds are not available, we will be unable to comply with those requirements and could cease to be qualified to have our stock traded in the public market. As a public company, we incur significant legal, accounting and other expenses. In addition, the Sarbanes-Oxley Act of 2002, as well as related rules adopted by the SEC, has imposed substantial requirements on public companies, including certain corporate governance practices and requirements relating to internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act.

 

Business disruptions could seriously harm our future revenue and financial condition and increase our costs and expenses.

 

Our operations, and those of our contractors and consultants, could be subject to pandemics, earthquakes, power shortages, telecommunications failures, water shortages, floods, hurricanes, typhoons, fires, extreme weather conditions, medical epidemics, acts of terrorism, acts of war and other natural or man-made disasters or business interruptions, for which we are predominantly self-insured. The occurrence of any of these business disruptions could seriously harm our operations and financial condition and increase our costs and expenses. We rely in part on third-party manufacturers to produce and process our products or the raw materials used to make our products. Our ability to obtain supplies of our products or raw materials could be disrupted if the operations of these suppliers are affected by a man-made or natural disaster, pandemics, epidemics, or other business interruption, including the recent novel strain of coronavirus (SARS‑CoV‑2 aka COVID-19) that originally surfaced in Wuhan, China in December 2019. The extent to which COVID‑19 impacts our business will depend on future developments, which are highly uncertain and cannot be predicted, including new information which may emerge concerning the severity of COVID‑19 and the actions to contain 2 or treat its impact, among others. Our corporate headquarters and offices of ONM are in Southern California near major earthquake faults and fire zones. Our operations and financial condition could suffer in the event of a major earthquake, fire or other natural disaster.

 

The COVID-19 coronavirus pandemic is ongoing and may result in significant disruptions to our clients and/or supply chain which could have a material adverse effect on our business and revenues.

 

The COVID-19 pandemic is still ongoing as of the date of this report, is still evolving and much of its impact remains unknown. It is impossible to predict the impact it may have on the development of our business and on our revenues in 2021.

 

Our corporate headquarters and offices of our ONM Environmental division are in Southern California. On March 19, 2020, California’s Governor issued an executive order that all residents of the State must stay at home indefinitely except as needed to maintain “essential critical infrastructure”. Varying forms of this initial order were in place as of December 31, 2020, and are expected to remain in place for the foreseeable future. COVID cases are currently increasing in certain European countries, and that may foretell an additional surge of cases in the United States or in California in the next months. As a result of the initial stay-at-home order, and subsequent restrictions, many businesses have closed and many people are out of work. Although many of our clients are included in the definitions of “essential critical infrastructure”, such as wastewater treatment plants and refuse collection infrastructure, these restrictions have affected our clients’ willingness to purchase our products and services, and adversely affected our revenues in 2020 at various times, and may continue to do so.

 

The severity of the coronavirus pandemic could also make access to our existing supply chain difficult or impossible by delaying the delivery of key raw materials used in our product candidates and therefore delay the delivery of our products. Any of these results could materially impact our business and have an adverse effect on our business.

 

 

A recession in the United States may affect our business.

 

If the U.S. economy were to contract into a recession or depression, our existing clients, and potential future clients, may divert their resources to other goods and services, and our business may suffer.

 

 

 

Risks Relating to our Common Stock

 

The sale or issuance of our common stock to Lincoln Park may cause dilution, and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.

 

On March 30, 2020, we entered into a Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park agreed to purchase from us at our request up to an aggregate of $10,250,000 of our common stock (subject to certain limitations) from time to time over a period of three years, noted above in our Risks Related to our Business. We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park. Sales of our common stock, if any, to Lincoln Park will depend on market conditions and other factors to be determined by us. We may ultimately decide to sell to Lincoln Park all, some or none of the shares of our common stock that may be available for us to sell pursuant to the LPC Agreement. If and when we do sell shares to Lincoln Park, after Lincoln Park has acquired the shares, Lincoln Park may resell all, some or none of those shares at any time or from time to time in its discretion. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock, as well as sales of our stock by Lincoln Park into the open market causing reductions in the price of our common stock. Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise desire to effect sales.

 

Our common stock is thinly traded and largely illiquid.

 

Our stock is currently quoted on the OTC Markets (OTCQB). Being quoted on the OTCQB has made it more difficult to buy or sell our stock and from time to time has led to a significant decline in the frequency of trades and trading volume. Continued trading on the OTCQB will also likely adversely affect our ability to obtain financing in the future due to the decreased liquidity of our shares and other restrictions that certain investors have for investing in OTCQB traded securities. While we intend to seek listing on the Nasdaq Stock Market (“Nasdaq”) or another national stock exchange when our company is eligible, there can be no assurance when or if our common stock will be listed on Nasdaq or another national stock exchange.

 

The market price of our stock is subject to volatility.

 

Our stock price has been and is likely to continue to be volatile. As a result of this volatility, investors may not be able to sell their common stock at or above their purchase price. The market price of our common stock and warrants may fluctuate significantly in response to numerous factors, many of which are beyond our control, including:

 

 

Because our stock is thinly traded, its price can change dramatically over short periods, even in a single day. An investment in our stock is subject to such volatility and, consequently, is subject to significant risk. The market price of our common stock could fluctuate widely in response to many factors, including:

 

 

developments with respect to patents or proprietary rights;

 

 

announcements of technological innovations by us or our competitors;

 

 

announcements of new products or new contracts by us or our competitors;

 

 

 

actual or anticipated variations in our operating results due to the level of development expenses and other factors;

 

 

changes in financial estimates by securities analysts and whether any future earnings of ours meet or exceed such estimates;

 

 

conditions and trends in our industry;

 

 

new accounting standards;

 

 

the size of our public float;

 

 

short sales, hedging, and other derivative transactions involving our common stock;

 

 

sales of large blocks of our common stock including sales by our executive officers, directors, and significant stockholders, including Lincoln Park;

 

 

general economic, political and market conditions and other factors; and

 

 

the occurrence of any of the risks described herein.

 

You may have difficulty selling our shares because they are deemed apenny stock.

 

Because our common stock is not quoted or listed on a national securities exchange, if the trading price of our common stock remains below $5.00 per share, which we expect for the foreseeable future, trading in our common stock will be subject to the requirements of certain rules promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which require additional disclosure by broker-dealers in connection with any trades involving a stock defined as a penny stock (generally, any non-Nasdaq equity security that has a market price of less than $5.00 per share, subject to certain exceptions). Such rules require the delivery, before any penny stock transaction, of a disclosure schedule explaining the penny stock market and the risks associated therewith and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally defined as an investor with a net worth in excess of $1,000,000 or annual income exceeding $200,000 individually or $300,000 together with a spouse). For these types of transactions, the broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction before the sale. The broker-dealer also must disclose the commissions payable to the broker-dealer and current bid and offer quotations for the penny stock and, if the broker-dealer is the sole market-maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market. Such information must be provided to the customer orally or in writing before or with the written confirmation of trade sent to the customer. Monthly statements must be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stocks. The additional burdens imposed on broker-dealers by such requirements could discourage broker-dealers from effecting transactions in our common stock, which could severely limit the market liquidity of our common stock and the ability of holders of our common stock to sell their shares. 

 

Because our shares are deemed apenny stock,rules enacted by FINRA make it difficult to sell previously restricted stock.

 

Rules put in place by the Financial Industry Regulatory Authority (FINRA) require broker-dealers to perform due diligence before depositing unrestricted common shares of penny stocks, and as such, some broker-dealers, including many large national firms (such as eTrade and Charles Schwab), are refusing to deposit previously restricted common shares of penny stocks. We routinely issued non-registered restricted common shares to investors, vendors and consultants. The issuance of such shares is subjected to the FINRA-enacted rules. As such, it can be difficult for holders of restricted stock, including those issued in our private securities offerings, to deposit the shares with broker-dealers and sell those shares on the open market.

 

Because we will not pay dividends in the foreseeable future, stockholders will only benefit from owning common stock if it appreciates.

 

We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings that may be generated in the future to finance operations. Accordingly, any potential investor who anticipates the need for current dividends from his investment should not purchase our common stock, and must rely on the benefit of owning shares, and presumably a rise in share price. We cannot predict the future price of our stock, and due to the factors enumerated herein, can make no assurance of a future increase in the price of our common stock.

 

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

Our company owns no real property. We currently lease approximately 9,000 square feet of office and industrial space at 14921 Chestnut Street, Westminster, California. In addition to serving as our principal offices, it is also a manufacturing facility where we manufacture our products, including our CupriDyne Clean Industrial Odor control product, and the home of our subsidiary ONM Environmental.

 

We also lease approximately 13,000 square feet of office and warehouse space at 105 Fordham Road, Oak Ridge, Tennessee, for our professional engineering division, BioLargo Engineering, Science & Technologies, LLC.

 

We also lease approximately 1,500 square feet of office and lab space from the University of Alberta. These offices serve as our primary research and development facilities and is the home of our subsidiary, BioLargo Water.

 

Our telephone number is (888) 400-2863.

 

 

ITEM 3. LEGAL PROCEEDINGS

 

Our company is not a party to any legal proceeding.

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES

 

Market Information

 

Since January 23, 2008, our common stock has been quoted on the OTC Markets “OTCQB” marketplace (formerly known as the “OTC Bulletin Board”) under the trading symbol “BLGO”.

 

The table below represents the quarterly high and low closing prices of our common stock for the last two fiscal years as reported by Yahoo Finance.

 

   

2020

   

2019

 
   

High

   

Low

   

High

   

Low

 

First Quarter

  $ 0.29     $ 0.12     $ 0.27     $ 0.16  

Second Quarter

  $ 0.20     $ 0.14     $ 0.31     $ 0.16  

Third Quarter

  $ 0.22     $ 0.15     $ 0.38     $ 0.22  

Fourth Quarter

  $ 0.16     $ 0.12     $ 0.36     $ 0.22  

 

 

The closing bid price for our common stock on March 24, 2021, was $0.227 per share. As of such date, there were approximately 650 registered owners of approximately 125,000,000 shares of our common stock, and approximately 4,000 non-objecting beneficial owners of approximately 114,000,000 shares.

 

Dividends

 

We have never declared or paid a cash dividend to stockholders. We intend to retain any earnings which may be generated in the future to finance operations.

 

Securities Authorized for Issuance Pursuant to Equity Compensation Plans

 

Equity Compensation Plan Information as of December 31, 2020

 

Plan Category

 

Number of securities to be

issued upon exercise of

outstanding options,

warrants and rights

(a)

   

Weighted average

exercise price of

outstanding options,

warrants and rights

(b)

   

Number of securities

remaining available for

future issuance

(c)

 

Equity compensation

plans approved by

security holders

    24,554,888(1)       $0.29       25,134,475  

Equity compensation

plans not approved by

security holders(2)

    20,749,583       $0.40       n/a  

Total

    45,304,471       $0.34       25,134,475  

 

 

(1)

Includes 5,689,363 shares issuable under the 2007 Equity Plan. The 2007 Equity Plan expired September 6, 2017, and 18,865,525 shares issuable under the 2018 Equity Incentive Plan adopted by the Board on March 7, 2018 and subsequently approved by stockholders on May 23, 2018.

(2)

This includes various issuances to specific individuals either as a conversion of un-paid obligations pursuant to a plan adopted by our board of directors, or as part of their agreement for services.

 

 

Sales of Unregistered Securities

 

The following is a report of the sales of unregistered securities in the past two years not previously reported in a Quarterly Report on Form 10-Q or in a Current Report on Form 8-K.

 

On December 31, 2020, we issued 150,000 shares of our common stock to a vendor to reduce amounts owed to the vendor in the aggregate amount of $18,000.

 

All of these offerings and sales were made in reliance on the exemption from registration contained in Section 4(2) of the Securities Exchange Act and/or Regulation D promulgated thereunder as not involving a public offering of securities.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable

 

ITEM 7. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis should be read in conjunction with our audited consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this report.

 

This discussion contains forward-looking statements that involve risks and uncertainties. Such statements, which include statements concerning future revenue sources and concentration, selling, general and administrative expenses, research and development expenses, capital resources, additional financings and additional losses, are subject to risks and uncertainties, including, but not limited to, those discussed above in Part I, Item 1 and elsewhere in this Annual Report, particularly in “Risk Factors,” that could cause actual results to differ materially from those projected. The forward-looking statements set forth in this Annual Report are as of December 31, 2020 unless expressly stated otherwise, and we undertake no duty to update this information.

 

Recent Events

 

The COVID-19 pandemic is currently impacting countries, communities, supply chains and markets as well as the global financial markets. Governments have imposed laws requiring social distancing, travel bans and quarantine, and these laws may limit access to our facilities, customers, management, support staff and professional advisors. These factors, in turn, may not only impact our operations, financial condition and demand for our goods and services, but our overall ability to react timely to mitigate the impact of this event. Also, it may hamper our efforts to comply with our filing obligations with the Securities and Exchange Commission. Depending on the severity and longevity of the COVID-19 pandemic, our business, customers, and stockholders may experience a significant negative impact.

 

Results of OperationsComparison of the years ended December 31, 2020 and 2019

 

We operate our business in distinct business segments:

 

 

ONM Environmental, which manufactures and sells our odor and VOC control products and services, including our flagship product, CupriDyne Clean;

 

 

BLEST, our professional engineering services division supporting our internal business units, advancing innovations like the AEC to remove PFAS contaminants from water, and serving outside clients on a fee for service basis;

 

 

 

Clyra Medical, our partially owned subsidiary which develops and sells medical products based on our technology; and

 

 

BioLargo Water, our Canadian division that has been historically pure research and development, and is now transitioning to focus on commercializing our AOS system and supporting the work to advance CupriDyne technology-based products through an EPA registration;

 

 

Our corporate operations, which support the operating segments with legal, accounting, human resources, and other services.

 

Consolidated revenue for the year ended December 31, 2020 was $2,432,000, which is a 31% increase over the same period in 2019. Sales at our operating divisions decreased upon the initial shutdowns in late March due to the COVID-19 pandemic, but have since rebounded. Our product revenue includes sales of our CupriDyne Clean industrial odor control product, Clyraguard Personal Protection Spray, and hand sanitizers. While we expect revenues to continue to increase, given the considerable extended time of the COVID-19 pandemic, we cannot be certain.

 

ONM Environmental (formerly, Odor-No-More)

 

Our wholly-owned subsidiary ONM Environmental generates revenues through sales of our flagship product CupriDyne Clean, by providing design, installation, and maintenance services on the systems that deliver CupriDyne Clean at its clients’ facilities, and through sales of odor absorption products to the U.S. Government. During 2020, ONM Environmental added two employees to focus on business development, increasing sales and increased levels of construction and maintenance contracts.

 

Revenue (ONM)

 

ONM’s revenues for the year ended December 31, 2020, were $1,554,000, an increase of $95,000 or 7% from the same period in 2019. Sales on a quarter-to-quarter basis had been increasing until the COVID-19 pandemic shut down businesses across the country, and have since rebounded. ONM’s fourth quarter revenue were approximately $617,000, an increase of 74% over the prior quarter due to the installation of large custom CupriDyne Clean misting systems. Of its gross sales in 2020, approximately two-thirds were to the waste handling industry.

 

Cost of Goods Sold (ONM)

 

ONM’s cost of goods sold includes costs of raw materials, contract manufacturing, and portions of depreciation, salaries and expenses related to the manufacturing and installation of its products. As a percentage of revenue, ONM’s costs of goods improved 2% in 2020 to 41%. The slight decrease in cost of goods is due to increase sales of higher-margin products and services, and an increase in product prices.

 

Selling, General and Administrative Expense (ONM)

 

ONM’s selling, general and administrative expenses increased by 22% to $1,418,000 during the year ended December 31, 2020. These expenses have increased alongside its efforts to increase revenues by hiring additional sales and support staff. We expect these expenses to remain consistent in 2021 unless and until its revenues increase.

 

Net Loss (ONM)

 

ONM generated $1,554,000 in revenue, a gross margin of $925,000, and had total costs and expenses of $1,408,000, resulting in a net loss of $483,000, compared with $337,000 in 2019. To increase its revenues, ONM had continued to invest in expanding its sales and operations, resulting in a continuing loss from operations, up and until the COVID-19 crisis occurred, but is now focused primarily on developing distribution and strategic alliances as it seeks to expand sales with existing staff.

 

 

BLEST (engineering division)

 

Revenue (BLEST)

 

Our engineering segment (BLEST) generated $615,000 of revenue in 2020, compared to $401,000 in 2019. The increase is due to an increased number of client contracts, including those as a subcontractor for Bhate pursuant to which BLEST is providing services to U.S. Air Force bases.

 

In addition to providing service to third party clients, BLEST provides services to BioLargo and its subsidiaries for internal BioLargo projects. These services are billed internally, considered intersegment revenue, and is therefore eliminated in consolidation. In the year ended December 31, 2020, it totaled $435,000, primarily used to further engineer and develop our flagship AOS water filtration system and our AEC PFAS treatment system. In addition, BLEST engineers are performing a critical role in the AOS pilot projects, some of which are supported by third-party research grants and has been instrumental in developing and supporting a professional engineered design service for misting systems being sold by our ONM operating unit.

 

Cost of Goods (Services) Sold (BLEST)

 

BLEST’s cost of services includes employee labor as well as subcontracted labor costs. In 2020, its cost of services were 77% of its revenues, versus 80% in 2019. This decrease is due to contracts with better margins. We expect the cost of services to remain consistent in 2021 based on the contracts currently in progress.

 

Selling, General and Administrative Expense (BLEST)

 

BLEST’S SG&A expenses were $413,000 in 2020, compared to $478,000 in 2019. We expect these expenses to remain flat in 2020, as the staff required to increase service to its clients and revenues will be included in cost of services.

 

Net Loss (BLEST)

 

BLEST generated $615,000 in revenue from third parties, a gross margin of $145,000, and had total costs and expenses of $764,000, resulting in a net loss of $619,000, compared with a net loss of $749,000 in 2019.

 

BLEST provides substantial support to BioLargo’s other operations, including BioLargo Water and Odor-No-More. While we are unable to record revenues generated from services by the engineering group to other BioLargo operating divisions for important project such as the development of the AOS and AEC technologies, it is important to note that its net loss would be eliminated if it were selling these services to a third party at fair market value.

 

Because the subsidiary had a net loss, we invested cash during the year to allow it to maintain operations. BLEST’s need for a cash subsidy to support its operations has decreased over time. We expect that in 2021 its sales and thus its gross profit will continue to increase. Our goal for this operation is that it produces a profit and contributes to corporate overhead in a significant way, although predicting when that will happen given the COVID-19 pandemic and other uncertainties in the market, and our limited resources, is difficult.

 

Other Income

 

Our wholly owned Canadian subsidiary has been awarded more than 80 research grants over the years from various Canadian public and private agencies, including the Canadian National Research Institute – Industrial Research Assistance Program (NRC-IRAP), the National Science and Engineering Research Council of Canada (NSERC), and the Metropolitan Water District of Southern California’s Innovative Conservation Program “ICP”. The research grants received are considered reimbursement grants related to costs we incur and therefore are included as Other Income. The amount of grant income decreased $81,000 in 2020 to $137,000. We continued to win grants and it is important to note that amounts paid directly to third parties are not included as income in our financial statements.

 

Our Canadian subsidiary applied for and received a refund on our income taxes pursuant to the “Scientific Research and Experimental Development (SR&ED) Program”, a Canadian federal tax incentive program designed to encourage Canadian businesses to conduct research and development in Canada. For the years ended December 31, 2020 and 2019, we received a refund of $99,000 and $63,000.

 

 

Although we are continuing to apply for government and industry grants, and indications from the various grant agencies is highly encouraging, we cannot be certain of continuing those successes in the future. We are very active in both the US and Canada, pursuing grant support for various uses of our products that we believe can help in managing the COVID-19 crisis.

 

Selling, General and Administrative Expenseconsolidated

 

Our Selling, General and Administrative expense (“SG&A”) include both cash (for example, salaries to employees) and non-cash expenses (for example, stock option compensation expense). Our consolidated SG&A increased in the aggregate by 22% ($1,333,000) in the year ended December 31, 2020 to $7,473,000. Our non-cash expenses (through the issuance of stock and stock options) increased in 2020 compared with 2019 ($3,125,000 compared to $2,232,000) because of options issued for Clyra Medical expenses increased and to option issuances to our employees, vendors and consultants resulted in a greater number of stock and stock options in lieu of cash owed. The largest components of our SG&A expenses included (in thousands):

 

   

Year ended

December 31, 2020

   

Year ended

December 31, 2019

 

Salaries and payroll related

  $ 2,855     $ 2,186  

Professional fees

    859       809  

Consulting

    1,624       1,278  

Office expense

    1,207       1,124  

Board of director expense

    259       300  

Sales and marketing

    494       262  

Investor relations

    175       181  

 

Our salaries and payroll-related and office-related expenses increased in 2020 due to increased sales personnel at ONM Environmental. Consulting expense increased due primarily to new sales activity at Clyra Medical requiring the supporting infrastructure. There was a slight increase in professional fees and sales and marketing as Biolargo increased its sales and business development efforts in its subsidiaries.

 

Research and Development

 

In the year ended December 31, 2020, we spent approximately $1,338,000 in the research and development of our technologies and products. This was a decrease of 9% ($134,000) compared to 2019, primarily due to a change in focus from pure research activities to commercializing our technologies and inventions, including the AOS and AEC water treatment systems. We incurred approximately $1,300,000 in expense related to our research and development activities in 2020, a decrease of approximately $150,000 compared with the prior year. We increased research and development to develop products in response to the COVID-19 pandemic, and decreased in other areas as our water treatment technologies have neared commercialization.

 

Interest expense

 

Our interest expense for the year ended December 31, 2020 was $1,923,000, a decrease of 52% compared with 2019. The significant decrease in interest expense is related to the significant decrease of our debt obligations and debt issued during 2020 versus 2019. Of our total interest expense in 2020, $118,000 was paid in cash, and the remainder, $1,805,000, was paid by issuing shares of our common stock. Our non-cash interest related expenses were comprised primarily as follows: (i) $1,618,000 non-cash debt discounts related to warrants issued in conjunction with debt instruments being amortized over the life of the debt instrument (in 2019, it was $3,376,000), and (ii) $184,000 related to interest on debt instruments converted to common stock.

 

 

Our outstanding debt as of December 31, 2020 was lower than as of December 31, 2019, and thus we expect our interest expense in 2021 to be less than that in 2020, provided we do not issue more debt with attached warrants during the remainder of the year. Additionally, we record the relative fair value of the warrants and the intrinsic value of the beneficial conversion feature sold with the convertible notes payable which typically results in a full discount on the proceeds from the convertible notes. This discount is amortized as interest expense over the term of the convertible notes. We expect our interest expense to decrease in 2021 because total amount we amortize (the line item on our balance sheet “Discount on convertible notes payable and line of credit, net of amortization”) decreased by $1,550,000 in 2020 – from $1,654,000 at December 31, 2019, to $104,000 at December 31, 2020. We also are currently selling units of common stock and warrants instead of using convertible debt for financing our working capital needs, which if continued, will continue to reduce our ongoing interest expense as compared with prior years.

 

Net Loss

 

Net loss for the year ended December 31, 2020 was $9,700,000 a loss of $0.05 per share, compared to a net loss for the year ended December 31, 2019 of $11,440,000 a loss of $0.08 per share. Our net loss this year declined because of an increase in revenue and a reduction in interest expense.

 

The net loss per business segment is as follows (in thousands):

 

Net loss

 

Year ended

December 31, 2020

   

Year ended

December 31, 2019

 

ONM Environmental

  $ (483 )   $ (337 )

BLEST

    (619 )     (749 )

Clyra Medical

    (2,139 )     (1,283 )

BioLargo Water

    (466 )     (447 )

BioLargo corporate

    (5,993 )     (8,624 )

Consolidated net loss

  $ (9,700 )   $ (11,440 )

 

 

It is important to note that over half of our net loss is due to non-cash expenses, such as interest and stock/stock options issued to employees and vendors in lieu of cash. Of the net loss of $9,700,000, interest expense was $1,923,000, of which $1,805,000 was non-cash expense. Additionally, we recorded $2,459,000 of stock option compensation expense, an additional $666,000 of services were paid by the issuance of our common stock and we recorded $442,000 loss on extinguishment of debt. The total of these non-cash items account for $5,372,000 of the consolidated loss of $9,700,000. Assuming they continue to expand sales, we believe that ONM and BLEST (engineering) can achieve positive cash flow from operations at some point in the future, although predicting when that will happen given the COVID-19 pandemic and other uncertainties in the market, and our limited resources, is difficult. As we are still in the early stages of commercialization of our products, and intend to invest substantial resources into launching the AOS and AEC water treatment systems, we expect to continue to incur a net loss for the foreseeable future.

 

Liquidity and Capital Resources

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the year ended December 31, 2020, we had a net loss of $9,700,000, used $4,154,000 cash in operations, and at December 31, 2020, we had a working capital deficit of $2,039,000, and current assets of $1,505,000. We do not believe gross profits in 2021 will be sufficient to fund our current level of operations or pay our debts as they become due during the next 12 months, and therefore we will have to obtain further investment capital to continue to fund operations and seek to refinance our existing debt. We have been, and anticipate that we will continue to be, limited in terms of our capital resources.

 

During the year ended December 31, 2020, we generated revenues of $2,432,000 through our subsidiaries. (See Note 12.) Our segments did not individually or in the aggregate generate enough revenues or gross profits to fund their operations, or fund our corporate operations or other business segments. Thus, to operate throughout 2020, we continued to sell securities to raise cash (see Notes 3 and 10), and were able to borrow money through programs administered by the Small Business Administration.

 

 

As of December 31, 2020, our cash and cash equivalents totaled $716,000, and our total liabilities included $1,006,000 in debt that is convertible at the option of the debtholders, $100,000 of debt that we may convert to equity at the April 2021 maturity date, $100,000 notes due on demand, $224,000 owed by our partially owned subsidiary Clyra Medical Technologies, Inc. (“Clyra”) due in June 2021, and $1,007,000 owed by Clyra that must be paid out of operational cash (see Note 4 and 10), with a maturity date that automatically extends each June. Since December 30, 2020, we have received over $2 million in proceeds from stock sales to Lincoln Park (see Note 3), and paid off $650,000 in debt (see also Note 14). We have two promissory notes due in August, 2021, (see Note 4, “Notes payable, mature August 12 and 16, 2021”), each of which may be converted by the holder into equity at $0.14 per share. If the holders do not voluntarily convert the notes to equity, we intend to pay the notes with cash raised through sales of stock to Lincoln Park, although there is no guarantee that we will be able to do so. The proceeds we receive from stock sales to Lincoln Park is a function of stock price and volume – a lower stock price and less trading volume results in less money we can receive from Lincoln Park. Our agreement with Lincoln Park precludes us from selling shares to Lincoln Park on a daily basis if our stock price falls below $0.10 per share. If we are unable to make daily sales, it is not likely we will be able to sell enough shares to Lincoln Park to pay the debt due in August, 2021. In such event, we intend to negotiate for a delay in repayment with the holders of the notes.

 

If we are unable to rely on our current arrangement with Lincoln Park to fund our working capital requirements, we will have to rely on other forms of financing, and there is no assurance that we will be able to do so, or if we do so, it will be on favorable terms.

 

To reduce our operational cash burdens, we regularly issue officers and vendors stock or options in lieu of cash, and anticipate that we will continue to be able to do so in the future. In the year ended December 31, 2020, our CEO and CSO accepted stock in lieu of $300,000 in unpaid salary and business expenses. Each has indicated a willingness to do so in the future.

 

The foregoing factors raise substantial doubt about our ability to continue as a going concern, unless we are able to continue to raise funds through stock sales to Lincoln Park or other private financings, and in the long term, our ability to attain a reasonable threshold of operating efficiencies and achieve profitable operations by licensing or otherwise commercializing products incorporating our technologies. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

 

The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of our business. For the year ended December 31, 2020, we had a net loss of $9,700,000, used $4,154,000 cash in operations, and at December 31, 2020, had a working capital deficit of $2,039,000, and current assets of $1,505,000. 

 

We operate our business in five distinct business segments. Each of these segments obtains cash to fund operations in unique ways. ONM and BLEST generate cash by selling products and services. Clyra Medical obtains cash from revenues, and third party investments of sales of its common stock. BioLargo Water generates cash through government research grants and tax credits. Our corporate operations generate cash through private offerings of stock, debt instruments, and warrants. Cash was generated as follows (in thousands):

 

   

Year ended

December 31, 2020

   

Year ended

December 31, 2019

 

SOURCES OF CASH

               

Revenue from operations

  $ 2,432     $ 1,861  

Grant income

    137       218  

Tax credit income

    111       63  

Stock for cash (BioLargo)

    2,783       125  

Stock for cash (Clyra Medical)

    851       536  

Proceeds from warrant exercise (BioLargo)

    --       560  

Debt (BioLargo)

    507       4,335  

Debt (Clyra Medical)

    260       --  

Total:

  $ 7,081     $ 7,698  

 

 

Although ONM, BLEST, and Clyra Medical generated revenues in the year ended December 31, 2020, neither generated operating profits. As such, we provided cash subsidies to each of these business segments to allow them to continue operations. While revenues have increased in both operating segments, both continue to expand operations and thus continue to generate losses.

 

Critical Accounting Policies

 

Our discussion and analysis of our results of operations and liquidity and capital resources are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, valuation of offerings of debt with equity or derivative features which include the valuation of the warrant component, any beneficial conversion feature and potential derivative treatment, and share-based payments. We base our estimates on anticipated results and trends and on various other assumptions that we believe are reasonable under the circumstances, including assumptions as to future events. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results that differ from our estimates could have a significant adverse effect on our operating results and financial position. We believe that the following significant accounting policies and assumptions may involve a higher degree of judgment and complexity than others.

 

The methods, estimates and judgments the Company uses in applying these most critical accounting policies have a significant impact on the results of the Company reports in its financial statements.

 

Revenue Recognition

 

We adopted ASU 2014-09, “Revenue from Contracts with Customers”, Topic 606, on January 1, 2018. The guidance focuses on the core principle for revenue recognition.

 

The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps:

 

Step 1: Identify the contract(s) with a customer.

 

Step 2: Identify the performance obligations in the contract.

 

Step 3: Determine the transaction price.

 

Step 4: Allocate the transaction price to the performance obligations in the contract.

 

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

We have revenue from two subsidiaries, ONM and BLEST. ONM identifies its contract with the customer through a written purchase order, in which the details of the contract are defined including the transaction price and method of shipment. The only performance obligation is to create and ship the product and each product has separate pricing. ONM recognizes revenue at a point in time when the order for its goods are shipped if its agreement with the customer is FOB ONM’s warehouse facility, and when goods are delivered to its customer if its agreement with the customer is FOB destination. Revenue is recognized with a reduction for sales discounts, as appropriate and negotiated in the customer’s purchase order. ONM also installs misting systems for which it bills on a time and materials basis. It identifies its contract with the customer through a written purchase order in which the details of the time to be billed and materials purchased and an estimated completion date. The performance obligation is the completion of the installation. Revenue is recognized in arrears as the work is performed.

 

 

BLEST identifies services to be performed in a written contract, which specifies the performance obligations and the rate at which the services will be billed. Each service is separately negotiated and priced. Revenue is recognized as services are performed and completed. BLEST’s contracts typically call for invoicing for time and materials incurred for that contract. A few contracts have called for milestone or fixed cost payments where BLEST bills an agreed-to amount per month for the life of the contract. In these instances, completed work, billed hourly, is recognized as revenue. If the billing amount is greater or lesser than the completed work, a receivable or payable is created. These accounts are adjusted upon additional billings as the work is completed. To date, there have been no discounts or other financing terms for the contracts.

 

Warrants

 

Warrants issued with our convertible and non-convertible debt instruments are accounted for under the fair value and relative fair value method.

 

The warrant is first analyzed per its terms as to whether it has derivative features or not. If the warrant is determined to be a derivative and not qualify for equity treatment, then it is measured at fair value using the Black Scholes option model, and recorded as a liability on the balance sheet. The warrant is re-measured at its then current fair value at each subsequent reporting date (it is “marked-to-market”).

 

If the warrant is determined to not have derivative features, it is recorded into equity at its fair value using the Black Scholes option model, however, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note.

 

Convertible debt instruments are recorded at fair value, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the warrant. Further, the convertible debt instrument is examined for any intrinsic beneficial conversion feature (“BCF”) of which the conversion price is less than the closing common stock price on date of issuance. If the relative fair value method is used to value the convertible debt instrument and there is an intrinsic BCF, a further analysis is undertaken of the BCF using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible debt is converted into by its terms. The BCF value is accounted for as equity.

 

The warrant and BCF relative fair values are also recorded as a discount to the convertible promissory notes. At present, these equity features of the convertible promissory notes have recorded a discount to the convertible notes that is substantially equal to the proceeds received.

 

Share-based Payments

 

It is the Company’s policy to expense share-based payments as of the date of grant or over the term of the vesting period in accordance with Auditing Standards Codification Topic 718 “Share-Based Payment.” Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking expectations projected over the expected term of the award.

 

Fair Value Measurement

 

Generally accepted accounting principles establishes a hierarchy to prioritize the inputs of valuation techniques used to measure fair value. The hierarchy gives the highest ranking to the fair values determined by using unadjusted quoted prices in active markets for identical assets (Level 1) and the lowest ranking to fair values determined using methodologies and models with unobservable inputs (Level 3). Observable inputs are those that market participants would use in pricing the assets based on market data obtained from sources independent of the Company. Unobservable inputs reflect the Company’s assumptions about inputs market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The Company has determined the appropriate level of the hierarchy and applied it to its financial assets and liabilities.

 

 

Management believes the carrying amounts of the Company’s financial instruments as of December 31, 2020 and 2019 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts receivable, prepaid assets, accounts payable, convertible notes, and other assets and liabilities.

 

Recent Accounting Pronouncements

 

See Note 2 to the Consolidated Financial Statements, “Summary of Significant Accounting Policies – Recent Accounting Pronouncements”, for the applicable accounting pronouncements affecting the Company.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Our consolidated financial statements as of and for the years ended December 31, 2020 and 2019 are presented in a separate section of this report following Item 14 and begin with the index on page F-1.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We conducted an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Annual Report.

 

Our procedures have been designed to ensure that the information relating to our company, including our consolidated subsidiaries, required to be disclosed in our SEC reports is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow for timely decisions regarding required disclosure. However, our Company is continuing to grow and evolve. The volume of our product sales continues to grow, increasing strain on our accounting systems. And, our operations do not yet generate enough cash to fund operations, and thus we rely on financing activities to maintain our level of operations and fund our anticipated growth. In combination, these activities put stress on our overall controls and procedures. Based on this evaluation, our chief executive officer and chief financial officer concluded that as of the evaluation date our disclosure controls and procedures were not effective, due to the material weakness identified below.

 

It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

 

Managements Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures are being made only in accordance with authorizations of management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

Under the supervision and with the participation of our management, including our chief executive officer and the chief financial officer, we have established internal control procedures in accordance with the guidelines established in the 2013 Framework —Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Management evaluated the effectiveness of our internal controls, and concluded that due to our limited financial and personal resources, and the fact that we operate our business in three distinct locations in the U.S. and Canada, we continue to have a material weakness in our internal controls with respect to the closing our financial statements. Until the company has the financial resources to implement more robust automated systems, or to hire additional dedicated accounting personal, we expect this material weakness to continue. In reaching this conclusion, management considered that despite this weakness, and others identified in past years, the company has not identified material misstatements in prior financial statements, and believes that the material weakness identified is not likely to lead to a material misstatement in the financial statements contained within this report.

 

Recognizing the dynamic nature and growth of the Company’s business, including the addition of an engineering division in late 2017, growth of the core operations, and the increase in the number of employees, management has recognized the strain on the overall internal control environment. As a result, management has concluded that its internal controls over financial reporting are not effective. Management identified a material weakness with respect to deficiencies in its financial closing and reporting procedures. Management believes this is due to a lack of resources. Management intends to add accounting personnel and operating staff and more sophisticated systems in order to improve its reporting procedures and internal controls, subject to available capital. A material weakness is a significant deficiency, or combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected. While management has recognized the material weakness, nothing additionally has changed in internal controls over financial reporting in the fourth quarter or the fiscal year ended December 31, 2020.

 

This Annual Report does not include an attestation report of the Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the SEC that permit the Company to provide only management’s report in this Annual Report.

 

Our management, including our chief executive officer and chief financial officer, does not expect that our disclosure controls or our internal control over financial reporting, or any system we design or implement in the future, will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

 

PART III

 

Certain information required by Part III is incorporated by reference from our Proxy Statement to be filed with the SEC in connection with the solicitation of proxies for our 2021 Annual Meeting of Stockholders, currently scheduled to be held on June 15, 2021 (the “Proxy Statement”).

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

 

The information required by this section is incorporated by reference from the section entitled “Proposal One—Election of Directors” in the Proxy Statement. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is incorporated by reference to the section entitled “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement. The information required by this Item with respect to our executive officers is contained in Item 1 of Part I of this Annual Report under the heading “Business—Executive Officers”.

 

ITEM 11. EXECUTIVE COMPENSATION

 

The information required by this section is incorporated by reference from the information in the section entitled “Executive Compensation” in the Proxy Statement.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The information required by this section is incorporated by reference from the information in the section entitled “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

The information required by this section is incorporated by reference from the information in the section entitled “Certain Relationships and Related Transactions” in the Proxy Statement.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The information required by this section is incorporated by reference from the information in the section entitled “Ratification of Appointment of Independent Auditor” in the Proxy Statement.

 

 

PART IV

 

 

 

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.

 

The following documents are filed as a part of this report:

 

1. Financial Statements. The consolidated financial statements required to be filed in this report are listed on the Index to Financial Statements immediately preceding the financial statements.

 

2. Financial Statement Schedules. Separate financial statement schedules have been omitted either because they are not applicable or because the required information is included in the consolidated financial statements or the notes thereto.

 

3. Exhibits. See the Exhibit Index for a list of the exhibits being filed or furnished with or incorporated by reference into this report.

 

 

Exhibit Index

 

 

 

 

 

Incorporated by Reference Herein

Exhibit

Number

Exhibit Description

Form

File Date

3.1

Bylaws of BioLargo, Inc., as amended and restated

Form 10-KSB

5/23/2003

3.2

Amended and Restated Certificate of Incorporation for BioLargo, Inc. filed March 16, 2007

Form 10-KSB

5/4/2007

3.3  Certificate of Amendment to Certificate of Incorporation, filed May 25, 2018 Pos Am 6/22/2018

3.4

Amended and Restated Articles of Incorporation of Clyra Medical Technologies, Inc.

Form 8-K

1/6/2016

4.1

BioLargo, Inc. 2007 Equity Incentive Plan

Form 10-QSB

11/19/2007

4.2

Amendment No. 1 to BioLargo 2007 Equity Incentive Plan

Def 14C (Exhibit A)

5/2/2011

4.3  2018 Equity Incentive Plan Form S-8 6/22/2018
4.4  Stock Option Award Agreement under 2018 Equity Incentive Plan Form S-8 6/22/2018
4.5  Notice of Stock Option Grant under 2018 Equity Incentive Plan Form S-8 6/22/2018
4.6  Restricted Stock Unit Award Agreement under 2018 Equity Incentive Plan Form S-8 6/22/2018
4.7  Notice of Restricted Stock Unit Award under 2018 Equity Incentive Plan Form S-8 6/22/2018
4.8  Form of Stock Options issued in exchange for reduction in accounts payable. Form 10-K 3/31/2015
4.9  September 2018 Amendment to Promissory Note dated December 14, 2017 issued to Vista Capital Investments, LLC. Form 8-K 9/18/2018
4.10  Stock Purchase Warrant issued to Vista Capital Investments dated September 12, 2018. Form 8-K 9/18/2018
4.11  January 2019 Amendment to Promissory Note dated December 14, 2017, by and between BioLargo, Inc. and Vista Capital   Investments, LLC. Form 8-K 1/11/2019

 

 

4.12

Convertible Promissory Note issued to Vista Capital Investments LLC dated January 7, 2019

Form 8-K

1/11/2019

4.13

Form of Note issued in Summer 2017 Offering

Form 10-Q

8/14/2017

4.14

Two-year Note in face amount of $440,000 issued July 2017

Form 10-Q

8/14/2017

4.15

Purchase Agreement, dated as of August 25, 2017 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC

Form 8-K

8/31/2017

4.16

Promissory note issued by Clyra Medical to Scion Solutions dated September 26, 2018

Form 8-K

10/2/2018

4.17

Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Form 8-K

9/24/2018

4.18

Stock Purchase Warrant issued to Vernal Bay Investments, LLC on September 19, 2018

Form 8-K

9/24/2018

4.19

Promissory Note issued to Chappy Bean, LLC on September 19, 2018

Form 8-K

9/24/2018

4.20

Stock Purchase Warrant issued to Chappy Bean, LLC on September 19, 2018

Form 8-K

9/24/2018

4.21

Warrant issued with Line of credit that matures September 1, 2019

Form 10-Q

5/14/2018

4.22

Amendment dated March 5, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Form 8-K

3/8/2019

4.23

Amendment dated March 5, 2019 to Promissory Note issued to Chappy Bean, LLC on September 19, 2018

Form 8-K

3/8/2019

4.24

$50,000 convertible note, matures March 8, 2020

Form 10-Q

5/14/2018

4.25

Amendment dated August 12, 2019 to Promissory Note issued to Vernal Bay Investments, LLC on September 19, 2018

Form 10-Q

8/14/2019

4.26

Amended and restated note issued to Vernal August 12, 2019

Form 10-Q

8/14/2019

4.27

Form of convertible notes that mature April 20, 2021 (Spring 2018 Offering)

Form 10-Q

5/14/2018

4.28

Warrant issued to Vernal August 12, 2019

Form 10-Q

8/14/2019

4.29

Revolving Line of Credit Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay

Form 8-K

7/7/2020

4.30

Form of warrant issued with convertible notes that mature April 20, 2021 (Spring 2018 Offering)

Form 10-Q

5/14/2018

4.31

Security Agreement dated June 30, 2020, between Clyra Medical and Vernal Bay

Form 8-K

7/7/2020

4.32

Revolving Line of Credit Note issued by Clyra Medical to Vernal Bay on June 30, 2020

Form 8-K

7/7/2020

4.33

Stock Purchase Agreement and Plan of Reorganziation dated September 26, 2018, with Scion Solutions, LLC

Form 8-K

10/2/2018

4.34

Stock Purchase Warrant Issued to Lincoln Park Capital on January 31, 2019

Form 8-K

2/11/2019

 

 

4.35

10% Convertible Promissory Note issued to Bellridge Capital, LP dated April 18, 2019 

Form 8-K

4/23/2019

4.36

Convertible Promissory Note issued to Crossover Capital dated May 10, 2019 

Form 10-Q

5/15/2019

4.37

Securities Purchase Agreement by and between BioLargo, Inc., and EMA Financial, LP dated June 4, 2019

Form 8-K

6/7/2019

4.38

10% Convertible Promissory Note issued to EMA Financial, LP dated June 4, 2019

Form 8-K

6/7/2019

4.39

Amendment #1 to the Convertible Note issued on June 4, 2019 to EMA Capital, LP

Form 8-K

6/7/2019

4.40

OID twelve-month promissory note

Form 8-K

8/2/2019

4.41

Stock purchase warrant issued to OID twelve-month investors

Form 8-K

8/2/2019

4.42

$600,000 Promissory note dated August 9, 2019

Form 10-Q

8/14/2019

4.43

Warrant to purchase 1.2 million shares issued August 9, 2019

Form 10-Q

8/14/2019

4.44

Amendment to $440,000 convertible notes that matures July 20, 2019

Form 10-Q

5/14/2018

4.45

Warrant issued March 2018, expiring March 2023

S-1

8/29/2019

4.46

Form of warrant issued January 2019 to Lincoln Park, expiring January 2024

S-1

8/29/2019

4.47

Registration Rights Agreement, dated as of March 30, 2020, by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC

8-K

3/31/2020

4.48

Warrant issued in 2020 Unit Offering

Form 10-Q

8/14/2020

4.49*

Amendment to $50,000 Convertible Note dated March 8, 2018

 

 

4.50*  Warrant issued to $50,000 Convertible Noteholder on March 1, 2020    

10.1

License Agreement to Clyra Medical Technologies, Inc., dated December 17, 2012

Form 8-K

1/6/2016

10.2

December 30, 2015 amendment to License Agreement with Clyra Medical Technologies, Inc.

Form 8-K

1/6/2016

10.3

Escrow Agreement dated September 26, 2018 regarding Clyra/Scion transaction

Form 8-K

10/2/2018

10.4

Closing Agreement dated December 17, 2018 between Clyra Medical and Scion Solutions

Form 8-K

12/19/2018

10.5

Amendment dated June 30, 2020 to License Agreement with Clyra Medical Technologies, Inc.

Form 8-K

7/7/2020

10.6

Amendment dated June 30, 2020 to Consulting Agreement dated December 30, 2015 between Clyra Medical and Beach House Consulting LLC

Form 8-K

7/7/2020

10.7

Consulting Agreement dated December 30, 2015 with Beach House Consulting LLC

Form 8-K

1/6/2016

10.8

Commercial Office Lease Agreement for 14921 Chestnut St., Westminster, CA 92683

Form 8-K

8/24/2016

10.9†

Employment Agreement with Dennis P. Calvert dated May 2, 2017.

Form 8-K

5/4/2017

 

 

10.10†

Lock-Up Agreement with Dennis P. Calvert dated April 30, 2017

Form 8-K

5/4/2017

10.11†

Lock-Up Agreement with Dennis P. Calvert dated May 2, 2017.

Form 8-K

5/4/2017

10.12

Commercial Office Lease Agreement for Oak Ridge Tennessee

Form 8-K

9/8/2017

10.13

Form of Employment Agreement for Engineering Subsidiary

Form 8-K

9/8/2017

10.14

Form of Option issued to founding employees of Engineering subsidiary (BLEST)

Form 8-K

9/8/2017

10.15†

January 16, 2019 Engagement Extension Agreement by and between BioLargo, Inc. and Charles K. Dargan

Form 8-K

1/18/2019

10.16

Securities Purchase Agreement by and between BioLargo, Inc., and Bellridge Capital, LP dated April 18, 2019

Form 8-K

4/23/2019

10.17

Securities Purchase Agreement by and between BioLargo, Inc., and Crossover Capital dated May 10, 2019

Form 10-Q

5/15/2019

10.18†

Provenzano Employment Agreement dated May 28, 2019

Form 8-K

6/24/2019

10.19†

Lock-Up Agreement dated May 28, 2019

Form 8-K

6/24/2029

10.20†

Lock-Up Agreement dated May 28, 2019

Form 8-K

2/27/2020

10.21  Purchase Agreement, dated as of March 30, 2020 by and between BioLargo, Inc. and Lincoln Park Capital Fund, LLC. Form 8-K 3/31/2020
10.22†  2021 Engagement Extension Agreement with CFO Form 8-K 3/19/2021
14.1  Code of Ethics Form 10-KSB 11/16/2004

21.1*

List of Subsidiaries of the Registrant

   

23.1*

Consent of Haskell & White LLP

   

24.1

Power of Attorney (see signature page)

   

31.1*

Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

   

31.2*

Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13(a)-14 and 15(d)-14 under the Securities Exchange Act of 1934

   

32.1*

Certification of Chief Executive Officer and Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.

   

101.INS**

XBRL Instance

   

101.SCH**

XBRL Taxonomy Extension Schema

   

101.CAL**

XBRL Taxonomy Extension Calculation

   

101.DEF**

XBRL Taxonomy Extension Definition

   

101.LAB**

XBRL Taxonomy Extension Labels

   

101.PRE**

XBRL Taxonomy Extension Presentation

   

 

 

* Filed herewith

 

 

** Furnished herewith

 

 

† Management contract or compensatory plan, contract or arrangement

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

BIOLARGO, INC.

     

Date: March 30, 2021

By:

/s/ Dennis P. Calvert       

   

Dennis P. Calvert

President and Chief Executive Officer

 

 

POWER OF ATTORNEY

 

KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints, jointly and severally, Dennis P. Calvert and Joseph L. Provenzano, and each of them, as his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this Annual Report on Form 10-K, and to file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or any of them, or their or his or her substitute or substitutes, may lawfully do or cause to be done by virtue hereof.

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Company and in the capacities and on the date indicated:

 

 

Name

 

Title

 

Date

     

/s/ Dennis P. Calvert

 

Chairman of the Board, Chief

 

March 30, 2021

Dennis P. Calvert   Executive Officer and President    
     

/s/ Charles K. Dargan II

 

Chief Financial Officer 

 

March 30, 2021

Charles K. Dargan II   (principal financial officer and    
    principal accounting officer)    
     

/s/ Kenneth R. Code

 

Chief Science Officer and Director

 

March 30, 2021

Kenneth R. Code        
     

/s/ Joseph L. Provenzano

 

Executive Vice President, Corporate

 

March 30, 2021

Joseph L. Provenzano   Secretary and Director    
     

/s/ Jack B. Strommen

 

Director

 

March 30, 2021

Jack B. Strommen        
     

/s/ Dennis E. Marshall

 

Director

 

March 30, 2021

Dennis E. Marshall        
         

/s/ Kent C. Roberts II

  Director   March 30, 2021
Kent C. Roberts II        
         

/s/John S. Runyan

  Director   March 30, 2021
John S. Runyan        

 

 

INDEX TO FINANCIAL STATEMENTS

 

 

Report of Independent Registered Public Accounting Firm

F-2

   

Consolidated Balance Sheets as of December 31, 2020 and December 31, 2019

F-6

   

Consolidated Statements of Operations and Comprehensive Loss for the years ended December 31, 2020 and 2019

F-7

   

Consolidated Statements of Stockholders Equity (Deficit) for the years ended December 31, 2020 and 2019

F-8

   

Consolidated Statements of Cash Flows for the years ended December 31, 2020 and 2019

F-9

   

Notes to Consolidated Financial Statements

F-10 – F-38

 

 

 

Report of Independent Registered Public Accounting Firm

 

 

To the Board of Directors and Stockholders

BioLargo, Inc. and Subsidiaries

 

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of BioLargo, Inc. and Subsidiaries (the “Company”) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ equity (deficit), and cash flows for each of the two years in the period ended December 31, 2020, and the related notes (collectively referred to as the “consolidated financial statements”).  In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2020 and 2019, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.  As discussed in Note 1 to the consolidated financial statements, the Company has experienced recurring losses, negative cash flows from operations, has limited capital resources, a net stockholders’ deficit, and significant debt obligations coming due in the near term.  These matters raise substantial doubt about the Company’s ability to continue as a going concern.  Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB.  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

 

Report of Independent Registered Public Accounting Firm (continued)

 

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures include examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements.  Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

 

Fair Value of Stock OptionsRefer to Notes 5 and 10 to the Consolidated Financial Statements

 

Critical Audit Matter Description

 

The Company issues options from both BioLargo, Inc. as well as its partially-owned subsidiary, Clyra Medical. Management uses the Black-Scholes option-pricing model to estimate the fair value of its stock options. The Black-Scholes option-pricing model involves the use of significant estimates, including the following:

 

 

Risk-free interest rate;

 

Expected share price volatility;

 

Expected dividend yield; and

 

Expected life of the award.

 

In addition, management discounts the estimated fair value of the Clyra Medical stock options because the partially-owned subsidiary is a private company with no secondary market for its common stock. Given the significant estimates involved in estimating the fair value of stock options, the related audit effort in evaluating management’s estimates in determining the fair value of stock options was extensive and required a high degree of auditor judgment.

 

How the Critical Audit Matter was Addressed in the Audit

 

We obtained an understanding over the Company’s process to estimate the fair value of stock options, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

 

 

We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the stock options’ expected term.

 

 

 

We recalculated the Company’s historical share price volatility for a term comparable to the stock options’ expected term. For Clyra Medical, we recalculated a comparable public company’s historical share price volatility for a term comparable to the stock options’ expected term.

 

We performed a look-back at the Company’s previously issued dividends, noting there were none. We inquired with management of the Company who informed us that no future dividends were currently anticipated.

 

We agreed the expected term of stock options granted to employees and non-employees to the original contractual term of the option as management deems it likely they will remain outstanding for the entire original term. We further noted that this was consistent with historical options granted.

 

In addition, we reviewed management’s analysis over the discount used on the estimated fair value of the Clyra Medical stock options. Management concluded that both the illiquidity and lack of marketability warranted a discount to the estimated fair value calculated using the Black-Scholes option-pricing model. We noted that Clyra Medical is a private company and therefore its stock is not actively traded. We also reviewed the stock sales history of Clyra Medical noting the infrequent stock sales supports management’s assertions of both illiquidity and lack of marketability. We further researched published articles on valuation discounts and noted that the liquidity and lack of marketability discount used by management was within a reasonable range.  

 

Accounting for Complex Debt TransactionsRefer to Notes 4 and 6 to the Consolidated Financial Statements

 

Critical Audit Matter Description

 

During the year ended December 31, 2020, the Company refinanced a convertible note to extend the maturity date by one year. The terms of the refinance included: (1) 25% of the principal and accrued interest converted to common stock, (2) a reduction to the conversion price to both the converted and remaining principal, and (3) extension of maturity dates of the warrants outstanding related to the convertible note. Management had to determine whether to account for the refinance as a debt modification or a debt extinguishment. Management determines if the modified terms of the refinance are considered substantially different, defined as the present value of the remaining cash flows after modification differ by at least 10% of those prior to the modification.

 

Management used the Black-Scholes option-pricing model to estimate the increase in fair value of the warrants modified with the refinanced convertible note, limited to a relative fair value based upon the percentage of its fair value to the total fair value including the fair value of the convertible note. The Black-Scholes option-pricing model involves the use of significant estimates, including the following:

 

 

Risk-free interest rate;

 

Expected share price volatility;

 

Expected dividend yield; and

 

Contractual life of the award.

 

Management also evaluated the refinanced convertible note for any intrinsic beneficial conversion feature, in which the revised convertible price of the note is less that the closing common stock price on the date of refinance. If the relative fair value method is used to value the convertible note and there is an intrinsic beneficial conversion feature, a further analysis is undertaken of the beneficial conversion feature using an effective conversion price which assumes the conversion price is the relative fair value divided by the number of shares the convertible note is converted into by its terms.

 

 

Given the significant estimates involved in estimating the total debt discount resulting from the relative fair value of the warrants and intrinsic beneficial conversion feature, as well as determining whether the debt refinance was a debt modification or debt extinguishment, the related audit effort in evaluating both management’s estimates in determining the total debt discount and determination of whether the refinance was a debt modification or debt extinguishment was extensive and required a high degree of auditor judgment.

 

How the Critical Audit Matter was Addressed in the Audit

 

We obtained an understanding over the Company’s process to determine whether a debt refinance is a debt modification or debt extinguishment. We reviewed the relevant guidance and management’s calculation of the present value of the cash flows prior to and after the debt modification. We also obtained an understanding over the Company’s process to estimate the debt discount resulting from the increase in the relative fair value of the modified warrants and the increase in the relative fair value of the intrinsic conversion feature from the reduction in conversion price, including how the Company develops each of the estimates required to utilize the Black-Scholes option-pricing model. We applied the following audit procedures related to testing the Company’s estimates utilized in the Black-Scholes option-pricing model:

 

 

We compared the Company’s risk-free interest rate used to the comparable United States Treasury yield for a term comparable to the warrants’ remaining contractual term.

 

We recalculated the Company’s historical share price volatility for a term comparable to warrants’ remaining contractual term.

 

We performed a look-back at the Company’s previously issued dividends, noting there were none. We inquired with management of the Company who informed us that no future dividends were currently anticipated.

 

We agreed the remaining contractual term of the warrants to the revised contractual term of the refinanced convertible note.

 

We also reviewed management’s relative fair value calculation used to determine the total debt discount and agreed all inputs as follows:

 

 

We agreed the fair value of the note to the refinanced convertible note agreement.

 

We agreed the fair value of the warrants to the fair value calculated using the Black-Scholes option-pricing model.

 

We agreed to stock price at the refinance date to the trading price.

 

We agreed the exercise price to the revised conversion price to the refinanced convertible note agreement.

 

Finally, we recalculated the change in the present value of the remaining cash flows after debt modification to determine if the correct accounting treatment was used by management.

 

 

 

    /s/ HASKELL & WHITE LLP  

 

 

 

Irvine, California

March 30, 2021

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

(in thousands, except for per share data)

 

   

DECEMBER 31,

 
   

2020

   

2019

 
                 

Assets

 

Current assets:

               

Cash and cash equivalents

  $ 716     $ 655  

Accounts receivable, net of allowance

    484       355  

Inventories, net of allowance

    277       16  

Prepaid expenses and other current assets

    28       39  

Total current assets

    1,505       1,065  
                 

In-process research and development (Note 9)

    2,150       1,893  

Equipment, net of depreciation

    60       95  

Other non-current assets

    35       35  

Investment in South Korean joint venture

    63        

Right of use, operating lease, net of amortization

    341       411  

Deferred offering cost

          122  

Clyra Medical prepaid marketing (Note 10)

    788        

Total assets

  $ 4,942     $ 3,621  
                 

Liabilities and stockholdersequity (deficit)

 

Current liabilities:

               

Accounts payable and accrued expenses

  $ 513     $ 394  

Debt obligations (Note 4)

    1,206       4,057  

Discount on debt, net of amortization

    (104 )     (1,472 )

Deferred revenue

    48       35  

Lease liability, current

    114       125  

Clyra Medical accounts payable and accrued expenses

    536       208  

Clyra Medical debt obligations (See Note 10)

    1,231       1,007  

Total current liabilities

    3,544       4,354  
                 

Long-term liabilities:

               

Debt obligations (Note 4)

    507       700  

Discount on convertible notes payable, net of amortization

          (182 )

Lease liability

    226       286  

Common stock held for redemption (Note 9)

    900       643  

Total liabilities

    5,177       5,801  
                 

COMMITMENTS AND CONTINGENCIES (Note 13)

               
                 

STOCKHOLDERS’ EQUITY (DEFICIT):

               

Preferred Series A, $0.00067 Par Value, 50,000,000 Shares Authorized, -0- Shares Issued and Outstanding, at December 31, 2019 and December 31, 2020

           

Common stock, $0.00067 Par Value, 400,000,000 Shares Authorized, 166,256,024 and 225,885,682 Shares Issued, at December 31, 2019 and December 31, 2020

    151       111  

Additional paid-in capital

    135,849       121,327  

Accumulated other comprehensive loss

    (101 )     (99 )

Accumulated deficit

    (132,041 )     (123,492 )

Total BioLargo Inc. and subsidiaries stockholders’ equity (deficit)

    3,858       (2,153 )

Non-controlling interest (Note 10)

    (4,093 )     (27 )

Total stockholders’ equity (deficit)

    (235 )     (2,180 )

Total liabilities and stockholders’ equity (deficit)

  $ 4,942     $ 3,621  

 

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(in thousands, except for per share data)

 

   

Year ended December 31,

 
   

2020

   

2019

 
                 

Revenue

               

Product revenue

  $ 1,825     $ 1,460  

Service revenue

    607       401  

Total revenue

    2,432       1,861  
                 

Cost of revenue

               

Cost of goods sold

    (743 )     (627 )

Cost of service

    (461 )     (318 )

Total cost of revenue

    (1,204 )     (945 )

Gross profit

    1,228       916  
                 

Operating expenses:

               

Selling, general and administrative expenses

    7,473       6,140  

Research and development

    1,338       1,472  

Total operating expenses

    8,811       7,612  
                 

Operating loss

    (7,583 )     (6,696 )
                 

Other income (expense):

               

Grant income

    137       218  

Tax credit income

    111       63  

Interest expense

    (1,923 )     (3,996 )

Loss on extinguishment of debt

    (442 )     (1,029 )

Total other (expense) income

    (2,117 )     (4,744 )
                 

Net loss

    (9,700 )     (11,440 )
                 

Net loss attributable to noncontrolling interest

    (1,268 )     (750 )

Net loss attributable to common stockholders

  $ (8,432 )   $ (10,690 )
                 

Net loss per share attributable to common stockholders:

               

Loss per share attributable to stockholders – basic and diluted

  $ (0.05 )   $ (0.08 )

Weighted average number of common shares outstanding:

    195,993,575       152,086,221  
                 

Comprehensive loss attributable to common stockholders

               
                 

Net loss

  $ (9,700 )   $ (11,440 )

Foreign currency translation adjustment

    (2 )     (9 )

Comprehensive loss

    (9,702 )     (11,449 )
                 

Comprehensive loss attributable to noncontrolling interest

    (1,268 )     (750 )

Comprehensive loss attributable to stockholders

  $ (8,434 )   $ (10,699 )

 

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENT OF STOCKHOLDERSEQUITY (DEFICIT)

(in thousands, except for share data)

 

   

Common stock

   

Additional

paid-in

   

Accumulated

   

Accumulated

other

comprehensive

   

Non-

controlling

   

Total stockholders’

 
   

Shares

   

Amount

   

capital

   

deficit

   

Loss

   

interest

   

equity (deficit)

 

Balance, December 31, 2018

    141,466,071     $ 95     $ 110,222     $ (111,723 )   $ (90 )   $ 373     $ (1,123 )

Conversion of notes

    12,105,699       8       1,727                         1,735  

Warrant exercise

    7,544,456       5       555                         560  

Issuance of common stock for service

    3,318,490       2       708                         710  

Issuance of common stock for interest

    915,164       1       199                         200  

Financing fee in common stock cancelled

    (150,000 )           (42 )                       (42 )

Stock issuance to officer

    500,000                                      

Sale of stock for cash

    556,144             125                         125  

Stock option compensation expense

                1,522                         1,522  

Warrants and conversion feature issued as discount on convertible notes payable and line of credit

                3,931                         3,931  

Issuance of Clyra common stock for cash

                186                   350       536  

Debt extinguishment expense

                619                         619  

Warrant reprice

                56                         56  

Exchange Clyra ownership for BioLargo debt

                440                         440  

Preferred Series A Clyra dividend, converted to Clyra common shares

                270       (270 )                  

Deemed dividend

                809       (809 )                  

Net loss

                      (10,690 )           (750 )     (11,440 )

Foreign currency translation

                            (9 )           (9 )

Balance, December 31, 2019

    166,256,024     $ 111     $ 121,327     $ (123,492 )   $ (99 )   $ (27 )   $ (2,180 )

Conversion of notes

    33,157,961       22       3,504                         3,526  

Issuance of common stock for service

    4,458,731       3       663                         666  

Issuance of common stock for interest

    1,728,331       1       183                         184  

Sale of stock for cash

    17,356,064       12       2,771                         2,783  

Stock issued as a commitment fee

    2,928,571       2       (124 )                       (122 )

Stock option compensation expense

                1,821                         1,821  

Loss on extinguishment

                442                         442  

Noncontrolling interest allocation

                3,157                   (3,157 )      

Clyra stock options issued for service

                638                         638  

Clyra stock issued for consulting agreement

                788                         788  

Clyra stock issued as line of credit commitment fee

                70                         70  

Issuance of Clyra common stock for cash

                492                   359       851  

Deemed dividend

                117       (117 )                  

Net loss

                      (8,432 )           (1,268 )     (9,700 )

Foreign currency translation

                            (2 )           (2 )

Balance, December 31, 2020

    225,885,682     $ 151     $ 135,849     $ (132,041 )   $ (101 )   $ (4,093 )   $ (235 )

 

See accompanying notes to consolidated financial statements and report of Independent Registered Public Accounting Firm.

 

 

 

BIOLARGO, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

(in thousands, except for per share data)

   

DECEMBER 31,

2020

   

DECEMBER 31,

2019

 

Cash flows from operating activities

               

Net loss

  $ (9,700 )   $ (11,400 )

Adjustments to reconcile net loss to net cash used in operating activities:

               

Stock option compensation expense

    2,459       1,522  

Common stock issued in lieu of salary to officers and fees for services from vendors

    666       710  

Common stock issued for interest

    184       200  

Interest expense related to amortization of the discount on convertible notes payable and line of credit and deferred financing costs

    1,618       3,376  

Loss on extinguishment of debt

    442       1,029  

Loss on investment in South Korean joint venture

    37        

Deferred offering expense

          53  

Financing fee paid in stock (cancellation)

          (42 )

Warrant reprice

          56  

Amortization and depreciation expense

    58       65  

Bad debt expense

    13       24  

Changes in assets and liabilities:

               

Accounts receivable

    (142 )     (121 )

Inventories

    (261 )     (9 )

Accounts payable and accrued expenses

    122       (65 )

Clyra accounts payable and accrued expenses

    327       188  

Deferred revenue

    14       35  

Prepaid expenses and other assets

    9       (21 )

Net cash used in operating activities

    (4,154 )     (4,422 )

Cash flows from investing activities

               

Equipment purchases

    (23 )     (35 )

Investment in South Korean joint venture

    (100 )      

Net cash used in investing activities

    (123 )     (35 )

Cash flows from financing activities

               

Proceeds from sale of common stock

    2,783       125  

Proceeds from convertible notes payable

          1,632  

Proceeds from OID offering

          2,703  

Proceeds from notes payable

          400  

Proceeds from SBA loans

    507        

Proceeds from warrant exercise

          560  

Repayment of note payable

    (25 )     (915 )

Proceeds received by Clyra from inventory line of credit

    260       430  

Repayment by Clyra on inventory line of credit

    (36 )     (175 )

Proceeds from sale of stock in Clyra Medical

    851       536  

Net cash provided by financing activities

    4,340       4,466  

Net effect of foreign currency translation

    (2 )     (9 )

Net change in cash

    61        

Cash at beginning of year

    655       655  

Cash at end of year

  $ 716     $ 655  

Supplemental disclosures of cash flow information

               

Cash paid during the year for:

               

Interest

  $ 118     $ 195  

Income taxes

  $ 2     $ 3  

Non-cash investing and financing activities